Market may edge lower on weak Asian stocks

A setback in Asian stocks, no rate cut announcement by the Reserve Bank of India at the week-end and sustained selling by foreign funds may pull the market lower. Monthly sales figures of auto and cement firms which would be out in the next 2-3 days and swap ratio for merger of Reliance Petroleum (RPL) with Reliance Industries (RIL) will influence trade in the near term.

Auto and cement sales figures for February 2009 could be keenly watched to get an inkling of the economy which is suffering a slowdown.

Meanwhile, the high weightage of index heavyweight RIL in the key benchmark indices, even a small movement in RIL stock could have large impact on the Sensex and the Nifty. The board of RIL and RIL meet today to consider the merger.

The market has been agog with talks of a rate cut by the RBI shortly. Some expectations were that the rate cut could have been at the week-end (either on Saturday 28 March 2009 or Sunday 1 March 2009). However, there was no such announcement at the week-end which may put pressure on stocks.

Despite a steep cut in policy rates by RBI since October 2008, there has not been a commensurate reduction in lending rates by banks as fears of rising bad loans have made them cautious in increasing advances/lending. One reason why banks have not fully passed on the central bank rate cuts to customers is because higher bond yields are pushing up their funding costs. Bond yields and bond prices are inversely related. After a steep decline in bond yields in Q3 December 2008, the yields have hardened considerably in calendar year 2009 on worries over government's borrowing programme.

Asian shares started the week on a downbeat note amid worries about the health of large US banks and the economy. Key benchmark indices in Hong Kong, Japan, China, South Korea, Singapore and Taiwan were down by between 0.37% to 4.7%