US jobs data may spoil party

MARKET WATCH

The Indian stock markets are delicately poised after a smart rebound from the lows registered last month following the subprime crisis.

The Sensex and the Nifty are not far from their previous highs. If Friday's US market close is any indication, the opening on Monday may be weak.

The industrial production figures and advance tax payment data to be announced will be crucial factors next week.

The US stocks fell by 1.8 per cent on Friday as the first monthly job decline since 2003 triggered fears of a recession. The Dow Jones Industrial Average, down 250 points, wiped out the week's gains.

Analysts are inclined to believe that chances of a Fed rate cut are higher. Citigroup, in a report, said a 25 bps rate cut at the Fed's next meeting on September 18 has been well flagged. Citi economists expect two further cuts in fairly quick succession for the year-end rate of 4.5 per cent."

The market is waiting to see how the likely Fed rate cut impacts other markets as the European central banks and the Bank of England have already halted rate hikes last week and the Bank of Japan did so last month. If the interest rate cycle turns, interest-sensitive sectors such as banking and auto will be in the limelight.

US payrolls shrunk by 4,000 last month compared with a 1,00,000 gain expected by economists. The Asian markets will react negatively to the data when they open on Monday.

The Indian market has seen a sharp rebound as FIIs turned net buyers after being on the selling side last month. The net buying by FIIs on Indian bourses was Rs 1,799.30 crore last week. The market capitalisation reached an all-time high, although the bench mark indices are far from their peak.

The small- and mid-cap indices look interesting. While the Sensex gained by 271 points, or 1.77 per cent, last week, the BSE Small-Cap Index went up by 373 points or 4.63 per cent. It reached an all-time of 8,518.06 points on Friday before closing at 8,433.52 points.

The BSE Mid-Cap Index also crossed its earlier peak to reach 6,909.25. It was up by 3.68 per cent during the week.

"The market needs to consolidate its gains during the week. Profit-booking can be expected at higher levels. But 4,400 is a strong support on the Nifty, while it is 15,000-15,100 for the Sensex," said Ketan Dedhia of Nalanda Securities. Uncertainties on the global front and advance tax figures would be crucial, according to Dedhia.

The outlook appears to be guardedly optimistic on the derivatives front as the markets are trading above 4,400. The 4,540-4,580 levels look possible in case of persistent buying.

The Nifty near-month futures are trading at a discount of Rs 31.55 against Rs 34.85 last weekend. The Nifty futures closed at 4,477.95 points, while the Nifty spot closed at 4,509.5 points.

The basis is pointing towards a higher risk appetite as markets move upwards. The higher Nifty discounts show going short could be costly. This suggests a positive bias.