Market may fall on weak Asia

The market may extend Monday's (26 October 2009)'s fall on weak Asia. Investors will keenly watch quarterly monetary policy review by the central bank today, 27 October 2009. Volatility may remain high as traders may roll over 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.

The Reserve Bank of India (RBI) on Monday said the economic outlook is a mix of recovery prospects and downside risks, and managing the trade-off between supporting growth and reining in inflation poses a complex policy challenge. It said anchoring inflation expectations in the face of sustained high inflation in essential commodities would be a key challenge and cautioned that weak private consumption and investment demand continued to be a drag on faster recovery.

The RBI said delayed withdrawal of the annual monsoon augured well for winter wheat and oilseeds crops due to high moisture retention in the soil, but this year's deficient summer monsoon could hinder faster recovery.

Analysts say a faster industrial output growth and rising inflationary pressures have strengthened case for an end to the RBI's accommodative monetary stance next year. Industrial output grew at its fastest pace in 22 months in August 2009 at 10.4%. Inflation based on the wholesale price index (WPI) rose 1.21% in the year through 10 October 2009, higher than previous week's annual rise of 0.92%, data released by the government on 22 October 2009 showed.

The RBI 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. While as exit from the loose monetary policy is imminent, speculation on the bourses is centred around the timing of the exit policy. The RBI is expected to keep its benchmark lending and borrowing rates on hold at a quarterly monetary policy review on Tuesday, 27 October 2009.

A section of market, however, expects the RBI to raise the cash reserve ratio (CRR), the proportion of deposits that banks keep with the central bank, to tame inflationary pressures in the economy. A possibility of a hike in the statutory liquidity ratio (SRL) cannot be ruled out either. In November 2008, the RBI had reduced the SLR by one percentage point to 24% - its first move in 11 years - as part of its measures to boost liquidity to cushion the impact of the global credit crisis after Lehman Brother's collapse. SLR is the minimum share of bank deposits to be held in approved government securities.

ICICI Bank will be in action after Singapore's Temasek cut its stake in ICICI to 5.76 % as of 30 September 2009 from 7.6 % end of June 2009.

India's third largest IT exporter by sales Wipro will be in action as per consolidated Indian GAAP, company recorded 19% year on year and 14% sequential growth in profit after tax at Rs 1162 crore. Rsults were announced before market hours on Tuesday.

India's largest commercial vehicle maker by sales Tata Motors will be in action after its net profit jumped 110.13% to Rs 729.14 crore on 11.87% rise in total income to Rs 8399.75 in Q2 September 2009 over Q2 September 2008. Rsults were announced after market hours on Monday.

Tata Motors said its operating margins surged 580 basis points at 13.4% in Q2 September 2009 over Q2 September 2008. Stable input costs and accelerated cost reduction efforts boosted margins, the company said. It said higher volumes and improved realizations contributed to growth in revenue.

The company said a change in accounting policy with respect to foreign exchange transaction contributed to a massive 153.3% surge in profit before tax (PBT) to Rs 906.85 crore in Q2 September 2009 over Q2 September 2008. The year-on-year growth in PBT would have been much lower at 49.7% if the company had followed the current accounting policy with respect to foreign exchange transaction in Q2 September 2008, Tata Motors said.

Sales volume in the domestic market rose on the back of revival of the industrial activity in the country, improvement in liquidity in the financial system, introduction of new products and new variants of existing products. However, exports continue to be impacted by slowdown in the company's prime export markets and also due to volatility in exchange rates.

Tata Motors said its market share in the domestic commercial vehicles sector surged to 65.5% in Q2 September 2009 from 62% in Q2 September 2008. In the passenger car segment, Tata Motors said it has commenced deliveries of British brands Jaguar and Land Rover in the domestic market which has received encouraging response.

India's largest steel maker by sales Tata Steel unveils its Q2 September 2009 result today

Reliance Power, Reliance Natural Resources, Ispat, Jet Airways, Kingfisher, Kotak Mahindra Bank, Crompton Greaves, Dewan Housing, Dish TV, Everest Kanto, Fortis Healthcare, GMR Industries, Gokaldas Exports, HMT, IFCI, Lanco Infratech among others will announce their Q2 September 2009 result today.

Stock and sector-specific activity may dominate trade on the bourses 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 amid sluggish credit offtake. 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 declined, on Tuesday as raw- material prices fell and Hong Kong enacted measures to curtail property speculation. Down payments for homes priced above HK$20 million ($2.58 million) will be raised to 40 % from 30 %, Hong Kong Monetary Authority Chief Executive Norman Chan said. The key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan fell by between 0.64% to 1.57%.

US markets retreated on Monday, led by financials and commodities, as the dollar rebounded. Financials were the day's biggest decliner after Rochdale Securities analyst Richard Bove downgraded three of the industry's bigger names- Suntrust, Fifth Third Bancorp, and US Bancorp. The Dow Jones dropped 104.22 points, or 1.05%, to 9,867.96. The S&P 500 Index shed 12.65 points, or 1.17%, to 1,066.95. The Nasdaq Composite Index fell 12.62 points, or 0.59%, to 2,141.85.

Back home, the key benchmark indices fell in choppy trade on Monday as caution prevailed ahead of the quarterly monetary policy review by the central bank on Tuesday, 27 October 2009.

As per provisional data, foreign funds on 26 October 2009, sold shares with a net Rs 2.74 crore. Domestic funds offloaded equities worth a net Rs 171.16 crore.

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 last week 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 Friday, 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.