Market set to gain on firm global cues;inflation data eyed

The key benchmark indices set to gain tracking firm global cues and jump in domestic industrial output data. However, worries over scanty rains and swine flu scare may cap upside. Investors will keenly watch India's wholesale price index (WPI) data in the 12 months to 1 August due to be announced by the government today.

The key benchmark indices registered small losses on Wednesday, recovering sharply from a steep intraday slide triggered by a sharp setback in Chinese stocks. Stronger-than-expected domestic industrial production data and recovery in European stocks aided the rebound in the second half of the trading session. The BSE 30-share Sensex was down 54.43 points or 0.36% at 15,020.16 on that day.

As per the provisional figures on NSE, foreign funds sold shares worth Rs 504.99 crore and domestic funds bought shares worth Rs 190.58 crore on Wednesday, 12 August 2009.

Concerns about the spread of swine flu remain. India cracked down on price gouging and hoarding of face masks and flu drugs on Wednesday as the toll from Swine flu climbed to 17.In Mumbai, India's financial hub, schools and colleges were closed for a week and cinema halls shut for three days. The Bollywood film industry also put off big releases and cancelled shoots. The health ministry asked states to set up more screening centres and prod private hospitals to help cope with large numbers of people demanding tests.

India's monsoon rainfall deficit has widened further, increasing the risk of crop damage, but its impact on the country's economy was offset by high growth in June industrial output due to buoyant consumer demand. The shortfall in rains increased by one percentage point from the previous day to 29 % on 10 August, with rains in the soybean-growing central region weakening, government sources said on Wednesday.

The deficit in the soybean-growing region of central India widened by 1 percentage point to 20 percent, while rainfall deficiency in cane-producing northwestern India remained unchanged at 42 percent. India relies on rain for 60 % of its irrigation and on agriculture for 17 % of its economy.

In sharp contrast to the gloom in the farm sector India's June industrial output expanded 7.8% its fastest pace in 16 months, beating forecasts by a wide margin. Industrial output expanded for the sixth straight month in Asia's third-biggest economy.

July continued to spell trouble for the country's foreign trade with imports too experiencing a sharp drop. Imports declined by 37% in July 2009 to $18.31 billion compared to $29 billion in July 2008 while exports dropped by 26.6% to $12.53 billion compared to $17 billion in July 2008.

Meanwhile, India proposes to reform its archaic tax laws, phase out exemptions, simplify rules on corporate mergers and help improve compliance, Finance Minister Pranab Mukherjee said on Wednesday. Complex laws and procedures have led to litigations, encouraged large-scale evasion and prevented the cash-strapped government to shore up revenues in a country of 1.1 billion-plus people.

He said the government would try to bring in a bill in the winter session of parliament expected to start in November, with the proposed changes. The bill has to be debated in parliament and get approved to become a law, which means it could be implemented from 2011.

The new code proposes to cut tax rates to bring in more people and companies under the tax net, phase out profit-linked exemptions for companies and replace them with investment-linked incentives. Business losses will be allowed to be carried forward indefinitely, while rules for capital gains and mergers and acquisitions will be rationalised, according to the draft plan.

The code proposed abolition of securities transaction tax, which is now levied on purchase of shares and bonds.Retirement benefits will be taxed at the time of withdrawal, the draft showed, but the code recommended the deduction limit for savings needed to be increased to Rs 3,00,000 ($6,200) from the present Rs 1,00,000.

Asian stocks rose today after the U.S. Federal Reserve said the recession is easing and pledged to keep interest rates low. The key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan rose by between 0.73% to 1.82%. China's Shanghai Composite Index was the only regional benchmark gauge to fall, sinking 0.6 percent for the sixth loss in seven days.

The US markets rallied on Wednesday, 12 August 2009 on the back of an improved outlook from the Fed and an encouraging housing report. The Federal Reserve kept its benchmark short-term interest rates steady near zero as expected and said it would likely stay there for an extended period. The fed said it will extend to the end of October a program to buy longer-term government securities.

The Dow gained 120.16 points, or 1.3%, to 9,361.61. The S&P 500 index added 11.46 points, or 1.2%, to 1,005.81, while the Nasdaq Composite Index gained 28.99 points, or 1.5%, to 1,998.72.

The FOMC also said that "Economic activity is leveling out" and "conditions in financial markets have improved further in recent weeks." But the fed warned at the same time that economic activity is likely to remain weak for some time. It also said household spending, while stabilizing, is still weak as a result of the grim labor market and tight credit.

It was positive news on economic front as well for the US economy. Existing-home sales rose 3.8%. However, mortgage applications fell 3.5%, as rising mortgage rates depressed refinancing demand.

But the trade gap widened in June to 27 billion dollars as higher prices on oil imports offset gains in exports.