Market may extend losses on weak Asia

The key benchmark indices may extend Monday's (8 June 2009) losses tracking weak Asia as investors may continue to book profits after the recent strong rally in Indian stocks.

Asian stocks fell today as concern a three-month rally had overvalued earnings prospects overshadowed comments from Nobel Prize-winning economist Paul Krugman that the U.S. recession may end this year. Key benchmark indices in China, Hong Kong, Japan, Singapore, Taiwan, South Korea fell by between 0.17% to 2.64%.

The US markets ended on a flat note on Monday, 8 June 2009 after a late rally fizzled out. Financials bounced back from an early decline. The Dow was up 1.36 points, or less than 0.1%, at 8,764.49. The S&P 500 index slipped 0.95 points, or 0.1%, to 939.14, and the Nasdaq Composite Index fell 7.02 points, or 0.4%, to 1,842.40.

Closer home, foreign funds turned marginal sellers on Monday, 8 June 2009. As per the provisional figures on NSE, foreign funds sold shares worth Rs 14.47 crore while domestic funds sold shares worth Rs 875.92 crore on Monday 8 June 2009. The BSE 30-share Sensex lost 437.63 points, or 2.9%, to 14,665.92 on Monday on profit taking tracking weak global cues after the recent solid surge.

Foreign funds made heavy purchases of Indian stocks in the past three months. Their inflow totaled Rs 2,599 crore in June 2009 (till 5 June 2009) after buying hefty Rs 20,606.80 crore in May 2009. FII inflow in calendar year 2009 totaled Rs 23,918.40 crore (till 5 June 2009).

On the back of heavy buying by foreign funds, the Sensex had jumped 5456.24 points or 56.55% in calendar year 2009 to 15,103.55 on Friday, 5 June 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex was up 6,943.15 points or 85.08% on 5 June 2009.

Meanwhile, as a major boost to the capital markets, members of the Securities and Exchange Board of India (Sebi) have reportedly suggested a phased reduction of the securities transaction tax as part of a package of measures to develop the capital markets.

President Pratibha Patil addressed to a joint session of both houses on Thursday, 4 June 2009 formally disclosing the agenda of the UPA coalition government. She said that the government would aim to revive economic growth with higher investments in sectors such as infrastructure, while adhering to fiscal prudence. Patil said steps would be taken to encourage foreign investment inflows, list shares of state-run firms and infuse more capital in banks. The government's immediate priority must be to focus on management of the economy that will counter the effect of the global slowdown, she added.

Patil said the new regime will develop a roadmap for listing public sector units, co-ordinate with other countries to bring back illegal money stashed in secret bank accounts, recapitalise public sector banks, and bring in the pension reforms bill.

On the economic front, the government's immediate focus would be on sectors that are adversely hit, especially small and medium enterprises, exports, textiles, commercial vehicles, infrastructure and housing.

Meanwhile, equity analysts are raising earnings forecasts of India Inc on hopes that the new government will focus on infrastructure sector and push economic reforms to boost growth. Bulls may retail hold this month on expectations of favourable announcement for the industry in the Union Budget 2009-2010.

The government reportedly plans to list only two state-owned companies Oil India (OIL) and National Hydroelectric Power Corporation (NHPC) this financial year through initial public offerings (IPOs) even as it aims to mop up Rs 6,500 crore via disinvestments by the year-end. The government will also dilute its holding in some companies where it holds more than 90% stake, including trading firms MMTC and State Trading Corporation of India (STC), as per a detailed annual disinvestment plan to be presented with the Union Budget in early July. The Budget will also contain the new government's broad sell-off plans for its first three years.

The government has the scope to raise funds through asset sales of state-run firms, the deputy chief of the Planning Commission said on Monday. Montek Singh Ahluwalia also told a news conference that there was a need for limiting subsidies.

Finance Minister Pranab Mukherjee is likely to present the Union Budget in the first week of July 2009 with focus on the common man while providing special attention to sectors hit hard by global crisis. Railway Budget for the year 2009-10 would be presented on 1 July 2009 followed by Economic Survey on 2 July 2009.

Investors expect financial sector reforms such as increase in the cap on foreign direct investment in insurance sector to 49%, from 26% at present. Finance Minister Pranab Mukherjee on 26 May 2009 said that a sustained stimulus to economic growth is possible by next round of reforms. He said reviving growth momentum is a top priority for the government adding that fiscal prudence will also be kept in mind.

Mukherjee said the government will stick to fiscal deficit target of 5.5% of GDP in the current financial year that ends on March 2010 (FY 2010). He said the government is committed to fiscal consolidation in 2-3 years. The minister said he would be able to announce the full-budget for FY 2010 by the first week of July 2009 and try to get it approved by 31 July 2009. He said the common man will be the focus of the government policy.

Ample global liquidity will help India Inc help raise funds for expansion which in turn will boost corporate profits. India Inc has already raised almost Rs 5,000 crore from three qualified institutional placements (QIPs) so far in 2009 and announced plans to raise another Rs 20,000 crore.

Falling interest rates will also support a larger capital expenditure programme of India Inc. Lower interest rates will also help sustain strong domestic demand. Late last week, India's biggest private sector bank by net profit ICICI Bank cut prime lending rate by 50 basis points