Indian market likely to extend rally

The better-than-expected GDP growth numbers for the fiscal year 2008-09 and pro-reform talk by several ministers of the newly set-up UPA coalition government over the weekend have reinforced the optimism on earnings front. Despite adverse global conditions, India's GDP grew a better-than-expected 6.7% at constant prices in 2008-09, suggesting that the worst of the slowdown is probably coming to an end.

GDP is likely to get further fillip in coming months on the back of fiscal stimulus provided by the government and election spending. The full impact of the stimulus measures announced in December and February couldn't be felt in the March quarter due to electoral code of conduct being in force.

Investors have reasons to believe that reforms will resume in many sectors. Finance Minister Pranab Mukherjee already said that he had identified the issues and areas of concern need to be addressed in the forthcoming budget and assured special attention to the sectors hit hard by the global meltdown such as textiles, leather, gems and jewellery and the infrastructure sectors.

Ministers who handle telecom petroleum, surface transport, steel and corporate affairs have announced plans to speedtrack pending policy measures in key sectors. While communication and IT minister A Raja proposed to carry out the much-awaited spectrum auctions for 3G and Wimax before August, petroleum minister Murli Deora hinted at a deregulation in fuel pricing in about six weeks and proposed to raise rates of natural gas sold by state-run firms.

The new minister for roads and surface transport Kamal Nath is expected to put the much-delayed expansion of the road networks on a fast track. Things need to be looked at in a new way and performance will be measured not in terms of plans, but in actual work, he said in a media interview. Commerce minister Anand Sharma hinted at more incentives for industrial and export sectors in the next budget.

Various economic reports released over the weekend also hinted the global recession was moderating and growth could resume by year-end. Japan's industrial production jumped the most in 56 years in April, house prices in the U.K. unexpectedly rose in May and German retail sales climbed the most in four months. Data from the U.S. showed that its economy contracted slightly less than initially estimated in the first quarter, while the commerce department's preliminary report showed that corporate profits after taxes rebounded 1.1% in the first quarter, baffling analysts who had expected a heavy fall.

Meanwhile, in a significant development, the Obama administration said Sunday that it has deemed GM's reorganization plan viable, and will provide the company $30.1 billion in what is called debtor-in-possession financing - money the company can use while it moves through the bankruptcy process. The company will also receive some support from the governments of Canada and Ontario, which will lend the firm $9.5 billion. Under bankruptcy, GM will continue to operate as it normally would. The process will create a new General Motors that will purchase substantially all the assets of the old GM that are needed to take the firm out of bankruptcy.

Back home, data released by the RBI revealed that that foreign exchange reserves, which includes foreign currency assets, gold and drawing rights with International Monetary Fund, recorded their highest growth in more than a year to touch $260.6 billion during the week ended May 22, helped by significant portfolio inflows and revaluation of non-dollar assets.

The rupee has been riding on a wave of positive sentiments unleashed by the prospects of a stable government and hopes of improved portfolio inflows. On Friday, the rupee rose to a one-week high of Rs.47.08 against the dollar, mirroring the upswing in the stock market and strong fourth quarter GDP data. The rupee has appreciated by nearly 8% thus far since early March.

On Friday, stocks on Wall Street saw some further upside over the course of the trading, helped by better than expected economic data. A late-session rally helped the major averages to finish the month of May on a high note, further building on recent gains.

In Asian trading on Monday, crude oil futures was last trading at a fresh seven-month high of $66.822 a barrel on hopes that oil producer group OPEC would keep oil output levels unchanged at a meeting last week.

Defying gravity, the Indian market extended its rise for the 12th week in a row last week. The BSE Sensex registered a gain of 5.3% to close at 14,625 points for the week and the S&P CNX Nifty rose over 5% to close at 4,449. On Friday, foreign institutional investors bought shares worth Rs.272.77 crore on a net basis, while domestic financial institutions bought shares worth Rs.873 crore, according to provisional NSE data.

The 15th Lok Sabha is all set to convene its first session on Monday. While the first three days are likely to see swearing-in of the MPs and the election of the Speaker, President Pratibha Patil's address to the joint sitting of both Lok Sabha and Rajya Sabha on June 4 may spell out the roadmap for the government. The speech will emphasize the UPA's unfinished agenda, especially in the infrastructure and development sectors, and may announce a new package to pull the economy out of its slowdown.

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