Market may extend gains on positive global cues; inflation eyed

The market may extend gains for third straight day on positive global cues after JPMorgan Chase & Co.'s earnings beat estimates. Investors will keenly watch headline inflation data for the week ended 3 October 2009 to be announced by the government today. Annual inflation slowed to 0.70 % in the week to 26 September 209 from 0.83 % in the previous week.

Bajaj Auto, Balaji Telefilms, CMC, Jindal Saw, Jaiprakash Hydropower, Merck, Reliance Industrial Infrastructure among others will announce their Q2 September 2009 result today.

India's second largest mobile telecom services provider by sales Reliance Communications (RCom) will be in action on reports the Securities and Exchange Board of India (Sebi) has asked for details of the special audit ordered by the Department of Telecommunications ahead of launching an independent investigation on the issue. The audit report by special auditors Parakh & Company had found that RCom, which offers CDMA mobile services and recently launched GSM services, had under-reported revenues for the financial years 2006-07 and 2007-08 that, in turn, impacted licence and spectrum fees it pays the government.

Meanwhile, C. Rangarajan, chairman of the prime minister's Economic Advisory Council said the Reserve Bank of India is likely to hold interest rates at a near decade-low in its policy review this month and the monetary stance can continue until inflationary pressures rise. Robust industrial growth could offset the impact of a 2 to 2.5 % contraction in farm output due to weak monsooon, and help the economy grow between 6 and 6.5 % in 2009/10, Rangarajan said.

Faster industrial output growth and rising inflationary pressures have strengthened case for an end to the RBI's accommodative monetary stance next year. India's industrial output grew at its fastest pace in 22 months in August at 10.4 %.

Last week, RBI Governor Duvvuri Subbarao said there was broad agreement India needed to step back from its easy policy stance, but he did not set a timeframe.

Meanwhile, the IPO of Indiabulls Power was subscribed 8.86 times at the end of second day of the issue on Tuesday. Indiabulls Power, a unit of Mumbai-based developer Indiabulls Real Estate, is developing five thermal power plants in western and central India, with total capacity of 6,600 megawatts, and will use the issue proceeds to fund two projects. The issue closes on Thursday, 15 October 2009.

The company has allotted 6.11 crore shares to anchor investors at Rs 45 per shares, at the top end of the Rs 40 to Rs 45 price band for the IPO.

Stock and sector-specific activity may dominate trade in the coming days based on expectations on Q2 September 2009 results. Auto firms are seen reporting strong Q2 results on strong volume growth and on lower input costs. Lower interest rates and pay hike for government employees has boosted auto sales this year after last year's slowdown in demand. Government employees have started receiving the balance 60% of their wage arrears as per the recommendations of the VIth Pay Commission.

Cement firms too are seen reporting good Q2 numbers on the back of volume growth, higher realisation and decline in costs like imported coal. Metal firms are seen reporting fall in net profit due to a sharp fall in metal prices on year-on-year basis.

Fall in volumes in the commercial property segment and lower realisations in both commercial and residential property segments, will pull earnings of realty firms lower.

Banks are seen reporting a sedate growth in core lending. On the flip side, PSU banks will benefit from treasury gains amid volatility in prices of government securities during the quarter.

Strong growth in new subscriber additions will aid topline growth of telecom firms. But falling average revenue per user (ARPU) and revenue per minute due to intense competition will cap bottom line growth.

Asian stocks advanced for a third day on Thursday after JPMorgan Chase & Co.'s earnings topped estimates and Posco raised its profit forecast. Treasuries and the dollar fell as investors sought higher-yielding assets. The key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan rose by between 0.43% to 2.11%.

US markets rallied and the Dow broke through the 10,000 mark for the first time since last October on Wednesday bolstered by strong earnings from JP Morgan. The S&P 500 & Nasdaq were also at new 2009 highs. Banks surged on the back of JP Morgan earnings. The Dow gained 144.80 points, or 1.5%, to 10,015.86. The S&P 500 index added 18.83 points, or 1.8%, to 1,092.02. The Nasdaq Composite Index rose 32.34 points, or 1.5%, to 2,172.23.

JP Morgan's third quarter profit beat expectations. The bank's earning per share stood at 82 cents a share, up from 9 cents a share in the same quarter a year ago. The bank's net revenue was 7.5 billion dollar, an increase of 85% from last year.

A government report showed U.S. retail sales, excluding auto purchases, rose for a second month. The data offered cautious optimism that spending could help support the economy as it struggles out of recession.

Back home, the key benchmark indices surged for the second day in a row on Wednesday as a rally in global stocks, strong response to the initial public offer of Indiabulls Power, stronger-than expected Q2 results from housing finance major HDFC and healthy Q2 outcome from HDFC Bank, boosted market sentiment. The barometer index BSE Sensex and the 50-unit S&P CNX Nifty on 14 October 2009, hit their highest closing levels in nearly 17 months. The BSE 30-share Sensex rose 204.40 points or 1.2% to 17,231.11 on that day.

As per provisional data, foreign funds on Wednesday, 14 October 2009, mopped up stocks worth a net Rs 1468.82 crore. Domestic funds sold shares worth a net Rs 196.91 crore

A section of the market is concerned that a glut in share sales may suck liquidity from the secondary market. As per reports, 30 companies have filed their draft red herring prospectuses in September 2009 with market regulator Securities & Exchange Board of India (Sebi) for raising funds through initial public offering.

The corporate sector has raised large sums of money through equity and equity related instruments in the past six months or so to either to retire high cost debt or to fund expansion. The supply of paper by Indian firms appear limitless, raising concerns that additional share sales will suck liquidity from the secondary market.

As per one report, companies plan to raise over Rs 50,000 crore through initial public offers (IPOs), follow-up public offers, divestment of stake sale in the second half of the current financial year. Reliance Infratel also announced on 22 September 2009, its intention to raise Rs 5,000 crore from the primary market. A number of companies are also in the fray to raise funds by way of qualified institutional placement (QIP), reports suggest.

Divestment of state-run firms by the government may also increase the supply of paper in the market. As per recent reports, the government is planning to announce a blueprint for selling its stake in state-owned firms in the first week of October 2009. The policy is expected to suggest how the government will eventually bring down its stake in public sector companies to 75% over a period of time.