However tough macro economic environment comprising high inflation, record high global crude oil prices and rising interest rates will continue to weigh on the sentiment in near term.
Sustained selling of Indian stocks by foreign institutional investors (FIIs) has also dented market sentiment. FII outflow outflow in calendar year 2008 totaled Rs 26571 crore (till 3 July 2008).
India's wholesale price index rose 11.63% in the 12 months to 21 June 2008, a 13-yeat high, and above previous week's annual rise of 11.42%, government data released on 4 July 2008 showed. Experts opine that the double-digit inflation is here to stay for some more time, but could trend down from September 2008. On 24 June 2008, the Reserve Bank of India (RBI) raised the cash reserve ratio (the proportion of bank deposits parked with the RBI) and the repo rate (the rate at which RBI lends to banks) by 50 basis points each, as part of monetary tightening to check inflation.
On the positive side, India's monsoon has been 21% above average so far this season. A normal monsoon may lift farm production, which accounts for a fifth of the economy, and cool the nation's fastest inflation rate in 13 years.
The market will also keep a close watch on developments on the political front. The Indian government is seeking support from the Samajwadi Party (SP), a key regional party in Uttar Pradesh to retain power at a time when Left parties are on the verge of withdrawing support. SP party leaders on Friday, 4 July 2008, met Prime Minister Manmohan Singh and hinted that they would approve the deal.
SP has 39 seats in parliament, compared with 59 for the communist parties. The Congress-led ruling coalition needs the support of 44 lawmakers to reach a majority. It would try and win the other five seats from smaller parties. SP is likely to announce its decision on supporting the Congress-led United Progressive Alliance (UPA) government in a couple of days
Communist parties on Friday, 4 July 2008, said the government must tell them by Monday, 7 July 2008, if it plans to press ahead with the next step in a controversial civilian nuclear deal with the United States. Left parties have threatened to end their backing for the government if it seeks approval for the deal from the International Atomic Energy Agency (IAEA), the next international move needed to operationalise the pact.
The key benchmark indices slumped to 15-month low in choppy trade to register seventh straight weekly loss in the week ended Friday, 4 July 2008. The barometer index BSE Sensex lost 348.22 points or 2.52% to 13,454 in the week ended Friday, 4 July 2008. The S&P CNX Nifty lost 120.65 points or 2.91% to 4,016 in the week.
From a record high of 21,206.77 hit on 10 January 2008, Sensex has lost 7752.77 points or 36.55%. It has shed 6832.99 points or 33.68% in calendar year 2008 thus far from its close of 20286.99 on 31 December 2007.