Market may fall on weak Asia; inflation eyed

The market may fall after Wednesday's (4 October 2009) sharp rebound tracking weak Asia. Investors will closely watch inflation data for the year to week ended 24 October 2009 due to be announced by the government today. The headline inflation for the week ended 17 October 2009 rose 1.51% compared to a rise of 1.21% previous week.

Montek Singh Ahluwalia, deputy chairman of the Planning Commission said on Wednesday, India will push ahead with financial sector reforms, which will not destablise growth, and can absorb a welcome rise in foreign investment flows. He also said food price inflation was a concern but it should moderate by the end of this year. Ahluwalia said the country would miss a target of 9 % annual growth between 2007/08 and 2011/12 as the global slump and the weakest monsoon in four decades hit output. The planning commission plans to reset the target.

The economy is expected to expand by 6.3% in the year to March 2010, the Planning Commission said in a report on Wednesday. The plan panel expects wholesale price inflation to go beyond 4-5% by end of March 2010.

Meanwhile, Finance Minister Pranab Mukherjee said on Tuesday, 3 October 2009 that the government has to continue with its fiscal stimulus and is confident of attaining it medium-term fiscal targets. He said non-farm credit growth remained an area of concern and said banks have been told to enhance credit growth.

The Reserve Bank of India at its monetary policy review, on 27 October 2009, left its key rates unchanged, but raised the wholesale price-based inflation projection for end-March 2010 sharply to 6.5% with an upward bias, from 5 % earlier.

The finance ministry has reportedly firmed up details of its budget announcement that listed companies will have to achieve at least 25% public holding in a phased manner, opening up the possibility of a plethora of equity offerings from such firms. Beginning 1 April 2010, those companies falling short of the set target would have to divest at least 5% stake within a year and a similar amount in the following year till they reach the threshold prescribed report said.

The HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to a 13-month peak of 56.78 in October 2009 after having dropped to a three-month low of 54.37 in September 2009. The index has been above 50, which separates expansion from contraction, for six months. Before that, it shrank for six months, hitting a trough of 40.3 in February 2009.

The business expectations sub-index recorded its fastest expansion since March 2008, at 79.47 in October 2009, compared with 74.82 in September 2009. Better market conditions, promotional strategies and good reputations were the main reasons for the increased confidence, the survey said

Meanwhile, rising crude oil costs have raised India's subsidy burden but the government has not taken any decision to revise state-set fuel prices, Oil Secretary R.S. Pandey said on Wednesday

Energy giant Reliance Industries will be in action after controversy in the court case between the Ambani brothers over gas pricing ratcheted up a notch with Justice R V Raveendran dramatically recusing himself from hearing the case, saying his daughter was associated with a solicitors' firm called AZB Partners that was advising the Mukesh Ambani group on other global projects. The incident caused opposing counsels to trade charges over the incident.

Asian stocks fell on Thursday led by consumer companies and banks, as South Korea said it's “unclear” whether the economic rebound will be sustained and New Zealand's unemployment rate rose to a nine-year high. The key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan fell by between 0.19% to 1.29%. But China's Shanghai Composite rose 0.22%.

US markets ended mixed on Wednesday as a rally that had started post the Fed's statement fizzled. Stocks had opened higher earlier in the day as investors cheered some encouraging readings on the economy.

The Federal Reserve meanwhile, kept its benchmark federal funds rate unchanged and repeated it will keep interest rates near zero for "an extended period". The Fed specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.The Fed said household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.

The Dow rose 30.23 points, or 0.3%, to 9,802.14. The S&P 500 index rose 1.09 points, or 0.1%, to 1,046.50. The Nasdaq Composite Index fell 1.80 points, or 0.1%, to 2,055.52.

In economic data from the US, the ISM reported its gauge of the services sector dropped to 50.6 in October from 50.9 in September. The ADP reported that fewer jobs were lost in October than in previous months.

Back home, bulls staged a strong return after suffering a sharp setback in previous six trading sessions on Wednesday. The BSE 30-share Sensex surged 507.19 points or 3.29% to 15,912.13 on that day.

As per provisional data on NSE, foreign funds bought shares worth Rs 234.31 crore and domestic funds bought shares worth Rs 557.19 crore on Wednesday.

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.

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.

The government has approved a follow-on public offering of 20% of state run Steel Authority of India, the steel minister said on 21 October 2009. The Government of India owns nearly 86% of Sail. Also the government gave its approval for 15% follow on public offer for Rural Electrification Corporation on 29 October 2009.