Market may extend last two days losses on weak Asia

The market may extend last two days of losses on weak Asia. The Reserve Bank of India (RBI) laying the groundwork on Tuesday in its monetary policy for a rise in interest rates by tightening credit to the commercial property sector, lifting its inflation forecast and warning of the threat of asset price bubbles may further weigh on investor sentiment. The RBI had pumped in massive liquidity in the banking system in the past one year or so to help revive the domestic economy in the aftermath of the global financial crisis.

Volatility may remain high on the bourses this week as traders rollover positions in the derivatives segment from October 2009 series to November 2009 series ahead of the expiry October 2009 contracts on Thursday, 29 October 2009.

HCL Technologies will be in action after its net profit rose 18.5% to Rs 300.75 crore in Q2 September 2009 over Q2 September 2008. Its net profit rose 55.87% to Rs 300.75 crore in Q2 September 2009 over Q1 June 2009. The results were announced before market hours today.

ACC, Ambuja Cements, Cipla, GAIL, HPCL, Sun Pharma, BoB, Firstsource, Gammon Infra, Hexaware, India Cements, Power Grid, Puravankara, Shree Cem, Tata Metaliks, Tata Tea among others will announce their Q2 September 2009 result today.

The Reserve Bank kept its benchmark lending and borrowing rates on hold at a quarterly monetary policy review on Tuesday, 27 October 2009. It also kept steady cash reserve ratio (CRR) at 5% but raised the statutory liquidity ratio to 25% from 24% with effect from 7 November 2009. Funds in CRR fetch no return for banks, while returns from SLR are small.

The RBI kept 2009/10 GDP forecast at 6% with upside bias and said it sees modest decline in agriculture. The RBI raised projection of inflation to 6.5% with an upside bias at end March 2010 from earlier 5%.

The central bank warned of possible asset price bubbles, raised banks' provisioning requirements for commercial real estate loans and lifted inflation forecast. The central bank said the precise challenge for the Reserve Bank of India is to support the economic recovery process without compromising on price stability. Growth drivers warrant a delayed exit, while inflation concerns call for an early exit, it said. Premature exit will derail the fragile growth, but a delayed exit can potentially engender inflation expectations, the RBI said.

The RBI said it will continue to monitor the price situation in its entirety and will take measures as warranted by the evolving macroeconomic conditions swiftly and effectively. It said it is mindful of its fundamental commitment to price stability. The central bank said the current large overhang of liquidity could engender inflation expectation even if credit demand remains subdued.

The central bank said the policy dilemma for India is different in some important respects from that of advanced economies as also other emerging market economies. It said India is confronted with an upturn in inflation, with rising headline inflation and stubbornly elevated consumer price inflation. According to RBI, most advanced economies and emerging market economies do not face an immediate risk of inflation. In several advanced economies, the concerns are about a possible deflation which are just about waning, it said

Asian stocks fell on Wednesday as losses at National Australia Bank and Canon Inc.'s lower profit raised concern about the strength of the global recovery. The key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan fell by between 0.56% to 2.04%.

US markets ended mixed on Tuesday on the back of a disappointing confidence report. The technology sector was under pressure following downside guidance from internet search engine baidu.com. Consumer-discretionary and tech stocks declined but the energy stocks rose along with oil prices. The Dow rose 14.21 points, or 0.1%, to 9,882.17. The S&P 500 index fell 3.54 points, or 0.3%, to 1,063.41, while Nasdaq fell 25.76 points, or 1.2%, to 2,116.09.

Back home, the key benchmark indices tumbled on Tuesday after the Reserve Bank of India withdrew emergency liquidity support measures that were implemented in the aftermath of the global financial crisis. The BSE 30-share Sensex shed 387.10 points or 2.31% to 16,352.40 on that day.

As per provisional figures on NSE, foreign funds sold shares worth Rs 548.77 and domestic funds bought shares worth Rs 141.56 crore on Tuesday.

The supply of paper by Indian firms appear limitless, raising concerns that additional share sales will suck liquidity from the secondary equity market. As per reports, Indian firms have garnered about $9 billion (Rs 32,400 crore at the current exchange rates) through sale of shares and convertible bonds to institutional buyers since April 2009. Indian companies are taking advantage of a surge in liquidity to recapitalize and fund capital expenditure after being starved of cash last year.

Most of these companies - from industries ranging from liquor and spirits to infotech - issued equity shares to a select group of investors by way of qualified institutional placement or QIP. If the enabling resolutions passed by the companies are any indication, Indian firms are gearing up to raise $15 billion (Rs 69,427 crore) in the next six months. The list includes Hindalco (Rs 2,900 crore), JSW Steel ($1 billion), India Cements ($100 million), Essar Oil ($2 billion), Tata Steel (Rs 5,000 crore), Jet Airways ($ 400 million) and Bharat Forge ($150 million).

Unlisted Reliance Infratel announced on 22 September 2009 its intention to raise Rs 5,000 crore from the primary market. Divestment of state-run firms by the government may also increase the supply of paper in the market.

The government recently approved stake sales in state-run power producer NTPC and another unlisted power firm Satluj Jal Vidyut Nigam which reflects the country's resolve to speed up reforms and raise more resources for social schemes. On Monday, Trade Minister Anand Sharma said the Union Cabinet had approved a 5% stake sale in NTPC, and 10% in, an unlisted power producer. On 16 October 2009, Prime Minister Manmohan Singh said many state-run firms are eager to list their shares in the stock market as it would help unlock their value.

The government has approved a follow-on public offering of 20% of state run Steel Authority of India, the steel minister said on Wednesday, 21 October 2009. The Government of India owns nearly 86% of Sail.