Market may edge higher on firm Asia

The market may edge higher in early trade tracking gains in most of Asia. However market may remain volatile after recent strong rally in indices.

The Reserve Bank of India (RBI) is likely to revise upwards growth forecasts for 2009/10 when it reviews policy in January 2010 and monetary action may be needed if inflation accelerates, Usha Thorat, a Reserve Bank of India (RBI) deputy governor said on Thursday. Thorat, said India's exit from its loose policy would be a challenge and managing the crisis was easier than managing the recovery now.

Managing capital inflows is again an important issue because large capital inflows and asset prices could feed on each other and this could be destabilising," Thorat said. Thorat also said that money supply growth, which was very low this year compared with in the previous two years, have implications for monetary policy.

On Monday, government data showed the economy grew at its fastest pace in 18 months expanding an annual 7.9 % in the September quarter. C. Rangarajan, who heads the prime minister's Economic Advisory Council, said he expected 2009/10 growth close to 7 %.The central bank is scheduled to review policy on 29 January 2009.

Rangarajan said the surge in food prices were a concern as it could boost manufactured prices. "That will require monetary action specially on the supply management side," he said. Data showed on Thursday, food inflation rose 17.47% in the 12 months to 21 November 2009, accelerating from previous week's level of 15.6 %.

Wholesale price inflation is expected to average 5.8 % in the 2010/11 fiscal year, according to a survey of professional forecasters, Thorat said on Thursday. India's gross fiscal deficit would reach 10.2 % of gross domestic product in the 2009/10 fiscal year, based on government budget estimates she said.

Meanwhile, the UPA government on Thursday cleared the introduction of State Bank of India (Amendment) Bill in the current session of Parliament. The Bill seeks to bring the government's holding in the country's largest public sector bank on a par with other public sector banks at 51 %. Currently, the Union government holds 59 per cent stake in the SBI. At present, the stake of the promoter, that is Government of India, cannot fall below 55 %.

However, the Cabinet reportedly deferred a decision on the controversial Pension Fund Regulatory and Development Authority Bill (PFRDA). Although the Bill was listed in the agenda paper of the meeting, it was not discussed and is likely to be taken up in the next Cabinet meeting report said. Pension Fund Regulatory & Development Authority Bill seeks to bring foreign direct investment (FDI) into the sector. The Bill proposes to allow foreign players to hold up to 26% stake in Indian pension fund companies. It would also permit pension funds to deploy part of their corpus abroad in approved instruments.

Most of the Asian stocks regained strength after falling from a 15-month high, after U.S. service industries unexpectedly shrank, raising concern the economic recovery is still fragile. The key benchmark indices in China, Indonesia, Japan, South Korea, and Taiwan rose by between 0.24% to 1.4%. But, the key benchamark indices in Singapore and Hong Kong fell by between 0.34% to 0.36%.

US markets closed sharply lower on Thursday, 3 December 2009 led by a sell-off in financial shares. Investors were concerned about the implication of Bank of America selling over $ 19 billion worth of common equivalent securities. The Dow Jones Industrial Average closed down 86.53 points or 0.83% at 10,366.15. The Nasdaq Composite ended down 11.89 points or 0.54% at 2,173.14 and S&P 500 Index down 9.32 points or 0.84% at 1,099.92,.

Disappointing economic data was another trigger for the losses on Wall Street. The Institute for Supply Management's reading on the services index came in at 47.1, indicating a degree of contraction. While jobless claims dipped more-than-expected to 4,57,000. etailer stocks struggled on disappointing batch of monthly same-store sales results.

US President Barack Obama urged corporate America on Thursday to help tackle the nation's highest unemployment in 26 years but also hinted at federal tax credits and aid to states to ease jobless woes.

Back home, the key benchmark indices retraced from 1-1/2 month highs on Thursday 3 December 2009 after comments by a top economic adviser and data showing a surge in food price inflation reinforced market expectation of a hike in cash reserve ratio by the central bank to suck out excess liquidity in the banking system. The BSE 30-share Sensex rose 15.77 points or 0.09% to 17,185.68 on that day.

As per provisional data, foreign funds on 3 December 2009, bought equities worth a net Rs 334.07 crore. Domestic funds sold stocks worth a net Rs 199.91 crore