Expectations that the central bank would again cut interest rates to shore up a faltering economy may support the market that shrugged off terror attack on Mumbai, India's financial capital, last week. The sentiment remains edgy due to selling by foreign funds and concerns about the weakening domestic and global economy.
Terrorists launched coordinated attacks in India's financial center of Mumbai on late Wednesday 26 November 2008, killing at least 132 and wounding hundreds at a train station, luxury hotels and a restaurant popular with Western tourists.
Falling inflation will support a soft monetary policy adopted by the central bank. Inflation based on the wholesale price index (WPI) rose 8.84% in the 12 months to 15 November 2008, a tad below the previous week's annual rise of 8.9%, data released by the government on 27 November 2008, showed. Inflation for the week ended 20 September 2008 was revised upwards to 12.13% from 11.99%. Inflation has been softening since peaking at 12.91% on 2 August 2008.
India's economy grew at 7.6% in the September 2008 quarter from a year earlier, at its slowest pace in nearly four years as it battered by high borrowing costs, data released by the government on Friday, 28 November 2008, showed.
The slowdown in the Indian economy and reduced availability and rising cost of funds are taking their toll on the performance of the corporate sector. Moreover, companies which have resorted to substantial overseas borrowing are seeing increase in cost of servicing the loan due to depreciation rupee which hit a record low of 50.60 against the dollar on 20 November 2008. Some companies have cut production to avoid higher inventories.
Sustained selling by the foreign institutional investors (FII) to shore up resources to beat the global liquidity crunch, have weighed heavily on the bourses. FII outflow reached Rs 54,301.10 crore in calendar 2008, till 25 November 2008.
Political uncertainty ahead of state elections will continue to weigh on the market. Delhi and Mizoram will go to the polls on 29 November 2008 and Rajasthan on 4 December 2008. The results of all five states including Chattisgarh and Madhya Pradesh are expected on 8 December 2008.