Market to extend gains

The key benchmark indices may extend Tuesday's (14 July 2009) strong gains tracking positive global cues. Finance Minister Pranab Mukherjee's statement on Tuesday that country aims to return to a path of fiscal prudence to ensure moderate interest rates may further soothe nerves of investors. Higher fiscal deficit had been a major cause of concern for the investors.

Asian stocks gained for a second day today, led by technology and mining companies, after an Intel Corp. sales forecast exceeded analyst estimates and metal prices rose. The key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan rose by between 0.46% to 2.34%.

The US markets closed slightly higher on Tuesday, 14 July 2009 as a positive start to earnings season was offset by a decline in the banking stocks. The Dow gained 27.81 points, or 0.3%, to 8,359.49. The S&P 500 index added 4.79 points, or 0.5%, to 905.84, while the Nasdaq Composite Index rose 6.52 points, or 0.4%, to 1,799.73.

In economic data, US retail sales rose in June 2009 for the second consecutive month, increasing 0.6%, the Commerce Department said. Separate figures from the Labor Department showed that US wholesale prices increased in June 2009 Its Producer Price Index (PPI) rose by 1.8%. Excluding food and energy bills, core wholesale prices were 0.5% higher. Petrol sales rose 5% last month, while car and auto parts sales added 2.3%.

Goldman Sachs also bettered analyst forecasts by reporting a 33% rise in quarterly earnings. Wall Street's largest surviving investment bank reported revenue of 13.6 billion against an estimate of 10.6 billion. Meanwhile in earnings, Intel reported a profit, excluding one-time items, of 18 cents a share in the second quarter, this is way ahead of analyst estimates. Its sales reached 8 billion dollars, compared with revenue of 9.47 billion last year.

Back home, firm global markets and forecast of increase in rains in the coming days boosted the domestic bourses on Tuesday, 14 July 2009 as the BSE 30-share Sensex jumped 453.38 points or 3.38% to 13,853.70. As per the provisional figures on NSE, the foreign funds bought shares worth Rs 87.23 crore and the domestic funds bought shares worth Rs 200.29 crore on Tuesday.

Meanwhile, the finance minister Pranab Mukherjee said on Tuesday that the government has no intention of monetising debt being issued to fund its widening fiscal deficit and aims to return to a path of fiscal prudence to ensure moderate interest rates. The budget presented last week projected a wider fiscal deficit of 6.8 % of gross domestic product for 2009/10 (April/March), to be funded by a record market borrowing of Rs 4,51,000 crore ($92 billion), spooking markets on the budget day. On Tuesday, he said the government had to borrow more in 2009/10 to meet spending needs that are projected at Rs 1,00,000 crore, and help the economy return to a higher growth path.

The government aims to return to a path of fiscal prudence at the earliest and cut the deficit to 5.5% of GDP by the end of 2010/11, and further to 4 % in 2011/12, he said. About the stake sales in government firms he said Finance Ministry has initiated discussion with other ministries for identifying the public sector undertakings where a portion of government shareholding can be sold and for issue of fresh equity by the public sector undertakings to meet their fund requirements. The details are being worked out and would be announced in due course he added.

Progess of monsoon will be closely watched by the investors, for monsoon-watchers Tuesday 14 July brought some jitters, as the government of Jharkhand declared four of its 22 districts drought-hit. Manipur has already declared all of its nine districts drought-hit. However, the Met department expects rains to pick up in the near-term, and is sticking to its forecast of a cumulative shortfall of only 7% from the long-period average for this year's South-West monsoon.

The government continues to be cautiously optimistic, its mood buttressed by accumulated food stocks of nearly 48 million tonne. Industry, too, reflects the mood, and believes that there is cause to worry only if the cumulative rainfall drops more than a fifth below normal. However, heavy rains lashed many parts of western Maharashtra, including Pune, Satara and Kolhapur on Tuesday. The monsoon has raised hopes of bridging the considerable rainfall deficit with favourable conditions for kharif sowing.

The market has entered a crucial period of earnings. The market expectations are that in Q1 June 2009, the 30 stocks that comprise Mumbai's benchmark Sensex index could see an annual fall in sales of 4-8% and fall in profit at between 9-13%.