Market may open higher on strong Asia

The key benchmark indices may extend Tuesday's (9 June 2009) strong gains tracking firm Asia. Recent buying by the foreign funds may further aid investor sentiment.

Commodity-related shares led Asian stocks higher today, snapping a two-day decline, after metals and oil prices rallied on a decline in the U.S. dollar and as hopes grew for stronger Chinese industrial demand.Key benchmark indices in Hong Kong, Singapore, South Korea and Taiwan rose by between 0.44% to 1.72%.

Japan's Nikkei rose 1% even as orders for Japanese machinery fell to a 22-year low and producer prices tumbled the most since 1987 as dwindling profits forced companies to cut costs amid the worst postwar recession. Bookings, an indicator of capital investment in the next three to six months, fell 5.4 % to 688.8 billion yen ($7.1 billion) in April 2009, the lowest since 1987, the Cabinet Office said today in Tokyo. Wholesale prices, the costs companies pay for energy and raw materials, slid 5.4 % in May 2009 from a year earlier, the Bank of Japan said.

China's Shanghai composite rose 0.22% as China's consumer prices fell for a fourth month, making it easier for the government to keep interest rates low and boost spending to revive the world's third-largest economy. Prices dropped 1.4% in May 2009 from a year earlier, after falling 1.5% in April 2009, the statistics bureau said today.

After a choppy session US markets ended flat on Tuesday, 9 June 2009. Most financials traded in the green after ten banks were allowed to repay capital they received through the troubled asset relief program. The companies are expected to give back some 68 billion dollar.

The Dow Jones Industrial average was down 1.43 points, or less than 0.1%, to 8,763.06. The broader S&P 500 index added 3.29 points, or 0.4%, to 942.43, and Nasdaq Composite Index rose 17.73 points, or 1%, to 1,860.13.

On the economic front, wholesale inventories shrunk by 1.4% in April 2009. More than the 1.2% decline expected. It marked the eighth straight month that inventories were slashed.

Crude rose above 70 dollars after an industry group reported that US crude stockpiles dropped and the dollar declined crude for July delivery surged to USD 70.01 dollars a barrel, the highest settlement since November last year.

Back home, the key benchmark indices are near their highest closing since last August as sustained buying by the foreign funds supported the market. As per the provisional figures on NSE, foreign funds bought shares worth Rs 955.31 crore on Tuesday 9 June 2009. FII inflow in June 2009 totaled Rs 2,893.90 crore (till 8 June 2009). FII inflow in calendar year 2009 totaled Rs 24,213.30 crore (till 8 June 2009). The BSE 30-share Sensex jumped 461.08 points, or 3.14%, to 15,127, its highest closing since 12 August 2008 on Tuesday, 9 June 2009.

Meanwhile, the government may ask private sector and foreign banks to step up disbursals to industry, after having directed state-run banks to do the same to help increase the flow of credit in the economy and boost liquidity in the market.

Private sector and foreign banks have shied away from expanding their loan books for fear of accumulating bad debt in a slowing economy. The issue of asking private and foreign banks to lend more is expected to come up for discussion at the meeting of finance minister Pranab Mukherjee with bankers today,

Prime Minister Manmohan Singh on Tuesday said India will achieve an economic growth of at least 7% this fiscal and promised more resources for areas like infrastructure and public services. "In last one year our economy was affected and our growth rate declined to about 7%," the Prime Minister told the Lok Sabha, replying to the motion of thanks on President Pratibha Patil's address to both houses of Parliament.

"I don't promise you we won't be affected by the international conditions, but we will be able to achieve a growth rate of 8-9%, even when the world grows at a lower rate," he said in his 45-minute address. "This year, we will be able to maintain a growth of 7%”.

The Prime Minister said the reason behind his optimism was that India's savings rate, which determines the money that can be deployed for development projects, was still high at 35% of gross domestic product (GDP). "We cannot spend our way into prosperity. But there is scope to increase the allocations, particularly for infrastructure," the Prime Minister said, hoping finance minister Pranab Mukherjee will address this issue in the upcoming national budget.

Manmohan Singh also sought to allay fears that pump priming of the economy by way of stimulus packages announced earlier and measures that will follow in the ensuing months would fuel inflation. "It (expenditure towards infrastructure) will not add to inflation, but to our economic growth."

According to the Prime Minister, fiscal deficit had increased sharply but even then India had enough resources to spend on flagship programmes thanks to the average annual growth of 8.6% achieved during the past five years. He also said that his government was deeply committed to the agenda listed in the President's address, adding flagship programmes will be further strengthened and public delivery system made more transparent. "Much ground has been covered, a lot more has to be done."

The PM's speech comes amid the backdrop of concerns that the government's two key allies viz. the DMK and Trinamool Congress (TC) may oppose economic reforms. Unveiling the agenda of the government, President Pratibha Patil in her speech addressed to a joint session of both houses had last week indicated government's intension to divest stake in state-run firms. The government, however, intends to retain control over state-run firms and will continue to hold at least 51% stake.

DMK chief M Karunanidhi's daughter and Rajya Sabha MP, Kanimozhi, on Monday signaled that the government could not count on her party's support for its disinvestment plans and should avoid the temptation of selling stakes in state-run firms for generating revenue. The DMK accounts for 18 members of the Parliament and is the third-biggest constituent of the Congress-led UPA government at the Centre.

A newspaper report on Tuesday suggested the government may defer a proposal to decontrol pricing of gasoline and diesel because of the increase in crude oil prices. Trinamool Congress (TC), a key ally in Prime Minister Manmohan Singh's government, opposes lifting controls on fuel pricing. With her eye on a series of local elections coming up in West Bengal, she told a Bengali television channel on Monday that her party would protest against any move which would result in higher fuel prices.

The petroleum minister had recently said he will submit a proposal for deregulation of oil products to the Cabinet in six to eight weeks. If government removes price controls on petrol and diesel, it would benefit PSU OMCs and also the government, which has been issuing oil bonds to share PSU OMC's burden. It would also persuade private refiners, such as Reliance Industries and Essar Oil, to reenter the oil-marketing business.

Any setback to reforms may weigh on the stock market at a time when many equity analysts have been raising earnings forecasts of India Inc on hopes that the new government will push economic reforms to boost growth.

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. Investor expectations from the new government are high. Investors expect financial sector reforms such as increase in the cap on foreign direct investment in insurance sector to 49%, from 26% at present.