Market may slip tracking weak global cues after faltering US jobs data

The key benchmark indices may slip tracking weak global markets as worsening job markets in the U.S. raised doubts the global economy will recover soon. Meanwhile, the investors will keenly watch for any surprises in the Rail Budget which will be presented by Railway minister Mamta Banerjee today, 3 July 2009 the day after the dream economic survey presented by the finance minister Pranab Mukherjee yesterday.

As per media reports, another fare cut is unlikely because Lalu Prasad's Interim Railway Budget in February 2009 has already strained the Indian Railways' finances. Lalu Prasad had announced a 2% reduction in passenger fares. Similarly, any increase in freight rates looks unfeasible because of the current economic downturn. With the present economic conditions not providing much scope for either large-scale fare concessions or an across-the-board increase in freight rates, the highlight of the Railway Budget for 2009-10 is likely to be a big push to public-private partnership (PPP) initiatives to enhance the Indian Railways' capacity to earn higher revenues on a sustainable basis.

Asian stocks fell for a third day today as rising unemployment in the U.S. stoked concern the global economic recovery is faltering. The key benchmark indices in China, Japan, Hong Kong, South Korea, Singapore fell by between 0.15% to 1.03%.

The US markets recorded a sharp slump yesterday, 2 July 2009 on disappointing jobs data. The US markets will remain shut today on account of their Independence Day.

The Dow Jones plunged 223.32 points, or 2.6%, to 8,280.74. The S&P 500 index fell 26.91 points, or 2.9%, to 896.42 and the Nasdaq Composite Index fell 49.20 points, or 2.7%, to 1,796.52.

Labor Department said U.S. employers cut 4,67,000 jobs in June 2009, over 100,000 more than economists had forecast. That pushed the nation's unemployment rate to 9.5% a level not seen since August 1983.

Back home, the near-term major trigger for the stock market is the Union Budget 2009-10 on Monday, 6 July 2009. The Union Budget 2009-2010 attains significant importance in the wake of the global financial crisis. Despite the country being relatively unharmed compared to the West, the UPA government will have many tasks on its to-do list, which includes boosting growth and demand, continuing to maintain liquidity, balancing inflation and also containing the country's worrying fiscal situation.

Suggesting sweeping tax reforms, the Economic Survey released yesterday, 2 July 2009 for the fiscal year ending in March 2010, asked for rationalising the dividend distribution tax (DDT) so that dividend is taxed in the hands of receiver. As per the current dispensation, a company pays tax on dividend declared to shareholders which is called dividend distribution tax. The dividend is tax-free in shareholders hand.

The survey also called for a review and phasing out of surcharges, cesses and transaction taxes such as commodities transaction tax (CTT), securities transaction tax (STT) and fringe benefit tax (FBT).

The Economic Survey said economy could grow around 7% in the year ending March 2010 if the US economy recovers by September 2009. It further said economy could return to 8.5-9% growth in medium terms if reforms are pursued. It said government should free diesel and petrol prices at the earliest. The report said government should take advantage of the recent low price in oil costs to free petrol and diesel prices.

The Economic Survey has called for introduction of standardized credit default swaps on exchanges subject to strict contols, introduction of exchange traded derivatives such as interest rates swaps, foreign direct investment in multi format retail starting with food retail, raising foreign equity share in insurance to 49%, rationalising dividend distribution tax and revival of disinvestment plan to generate at least Rs 25,000 crore annually. The survey has also called for reforms in petroleum, fertilizers, food subsidies to reduce leakages, ensure targeting. The survey also called for an auction of third-generation mobile phone spectrum.

It also called for implementation of a goods and services tax (GST) by April 2010 to maximise revenues and simplify the tax regime. It also called for "greater urgency" to removing hurdles to investment in infrastructure by government and the private sector. The survey said inflation is no longer a worry and called for an urgent return to the targeted fiscal deficit of 3%.

The survey said it be challenging to fund $500 billion of planned spending on roads and power plants over five years as the economic slowdown and the global financial crisis have made it difficult to raise funds.

The survey has also called for passage of pending bills on pension, insurance and forward contract reforms.

Meanwhile, corporate India appears to be in a rush to raise funds by share sales to institutional investors. GVK Power & Infrastructure's qualified institutional placement was reportedly oversubscribed which closed yesterday. The company was looking to raise $125-150 million via QIP. Bajaj Hindusthan (BHL) on Wednesday raised Rs 723 crore through a QIP. A number of firms have announced plans this week to raise funds through shares sales to institutional investors, taking advantage of a solid surge in share prices in the past three months. Brokers expect companies to raise over $10 billion in the current financial year by way of share placements and initial public offers.

A glut in share sales by companies may keep a lid on share prices in the secondary market. On the flip side, the raising of funds will help corporates finance expansion and reduce debt. But it will result in equity dilution which the stock market normally does not like due to earnings dilution.

As per the provisional figures on NSE, foreign funds bought shares worth Rs 247.26 crore and domestic funds bought shares worth Rs 212.65 crore on Tuesday, 2 July 2009.