FII flows hold key to stock market in truncated week

{mosimage}More of short covering than the reemergence of foreign institutional investors flows (FIIs) helped the Indian equity market to touch new all-time high. Last week, the market barometer BSE Sensex hit an all-time high of 27,894.32 on Friday, before closing at an all-time high of 27,865.83. Though some long position has been building in the Indian market, for the market to have legs to climb higher it will require the support of fund flows.

The reason for the interest in Indian market is expectation of global money flowing into the market following weak global economies, especially Europe. Expectation of quantitative easing (QE) in Europe and Japan will see money coming into emerging markets including India, which has been the top performing market among emerging economies.

Japan has already hinted that it will continue its quantitative easing until the economy doesn't see inflation reaching up to 2 per cent. Annually Japan has increased its bond purchase programme from 50 trillion yen to 80 trillion yen. Though there are expectations that money from Japan will flow into global markets, so far unlike the US and Europe, easy money from Japan has not witnessed any huge outflow to other economies. However, strong expectation of another QE in the Euro-Zone will add more liquidity in the world. On Thursday, November 6, the European Central Bank and Bank of England will announce their stance on interest rates, which the market is expecting to remain unchanged. Though the US has announced to stop it's bond purchase programme, it has clearly indicated it is in no hurry to raise interest rates, which is a huge positive for the world markets.

The other major reason for interest in the Indian market has been the sharp fall in global energy prices. Crude oil prices falling from $110 per barrel to $85 per barrel has been seen as a huge positive for the Indian economy and markets. In fact, the 20-23 per cent fall in crude is seen as a boon in a scenario where the fiscal deficit has reached 83 per cent in the first half of FY2015. Most players in the market expect expenditure cut by the government in the next six months of 2014/15.

However, the fall in oil price and domestic petrol and diesel prices couldn't help in increasing automobile sales for October, which will see auto stocks to be in focus during the week. Cement stocks will also be in focus as cement companies report their monthly sales numbers.

Meanwhile, in the truncated week with Indian equity market being closed on November 4 and 6, 2014 on account of Muharrum and Guru Nanak Jayanti, respectively, the market will keep a close eye on HSBC Manufacturing PMI data on Monday, November 3, and HSBC India Services PMI data on Wednesday, November 5. For September 2014, HSBC Manufacturing PMI data was at 51, falling from 52.4 in August 2014, while HSBC Services PMI data for September 2014 was 51.6 from 50.6 in August 2014. Till the index remains above 50 it signifies growth.
Key results like Larsen & Toubro, Jet Airways, Canara Bank, Syndicate Bank, Marico, Dabur India, Jindal Steel & Power, Trent, Sun TV and Glaxosmithkline Pharmaceutical will be in focus.