Market may edge higher on positive Asia; food inflation data eyed

The market may edge higher tracking positive Asian stocks after encouraging economic data from the US. However, market may remain volatile ahead of the expiry of December 2009 futures & options contract today. The government will today unveil data on some wholesale price indices for the year through 19 December 2009 viz. the food price index, the primary articles index and the fuel price index. The market remains closed on Friday, 1 January 2010, for the New Year holiday.

Meanwhile, the market will open at 9:00 IST and close at 15:30 IST from 4 January 2009 from the current 9:55 IST to 15:30 IST as fixed by the stock exchanges NSE and the BSE.

Finance Minister Pranab Mukherjee said on Wednesday that the government needs to strike a balance between economic growth and cutting fiscal deficit. India's fiscal deficit is estimated at 6.8% of gross domestic product for 2009/10 (April-March), higher than 6.2% in the previous year as the government cut tax rates and boosted spending.

C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister, on Tuesday raised concern over the rising food inflation, which is at an 11-month high now, stating that the task ahead was to check food inflation. He indicated that the Reserve Bank of India could look at raising the cash reserve ratio (CRR) to suck out excess liquidity from the system, even though the central bank may watch the price movements for some more time before taking any decision on rate hike.

The focus of India's monetary policy is shifting to managing recovery and containing inflation from one concentrated on fostering growth after the global downturn, Reserve Bank of India deputy governor Shyamala Gopinath said early this week. She said rising food prices were fuelling concerns of broader price pressures in India and the policy challenge was to address the supply-side constraints.

She said effective assessment of the inflation process and using monetary policy actions at the right time would be critical. Gopinath's comments follow those from fellow Deputy Governor Subir Gokarn on Thursday, 24 December 2009, who said the January 2010 policy review would focus both on growth and inflation, instead of the previous policy focus on growth.

Food price index rose 18.65% in the 12 months to 12 December 2009, data released by the government on 24 December 2009, showed. The primary article index jumped 14.66% and the fuel price index rose 3.95%. The worst monsoon in nearly four decades and flooding in some parts of the country have pushed up food prices.

Finance Minister Pranab Mukherjee said last week that containing inflation and cutting fiscal deficit are the major challenges for the government in the short-to-medium term. The Indian economy can grow at 7.75% in the fiscal year ending March 2010, the Finance Minister said.

Meanwhile, the latest data showed that corporate advance tax payments for the October-December 2009 quarter shot up sharply, suggesting a higher profit growth in corporate sector in the third quarter (October-December) of the current fiscal. Corporate advance tax payments for the quarter were up 44% to Rs 48,300 crore against a 3.7% decline in April-June quarter and a 14.7% increase in July-September quarter. The company-wise break-up of advance tax collection suggests a broad-based recovery with automobiles, cement, metals and consumer goods, doing well.

In global news, encouraging U.S. economic data helped lift Asian stocks on Thursday. The key benchmark indices in China, Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan rose by between 0.35% to 1.26%.

Beijing will stick to its loose monetary stance, but will try to be more flexible in implementing its policies, People's Bank of China Governor Zhou Xiaochuan said on Thursday.

US stocks spent almost the entire session trading with moderate losses until some late support helped the major indices improve their position on Wednesday. Better-than-expected report on Midwest manufacturing helped sentiment. The Dow Jones industrial average added 3.10 points, or 0.03%, at 10,548.51. The Standard & Poor's 500 Index was up 0.22 point, or 0.02%, to finish at 1,126.42. The Nasdaq Composite Index gained 2.88 points, or 0.13%, to close at 2,291.28.

Encouraging economic data provided support to the market. The Chicago purchasing-manager's index jumped to 60 in December 2009 from 56.1 in November, the highest since January 2006 and well above expectations. The employment gauge also rose, hitting its highest since November 2007.

Closer home, profit booking in index pivotals following four straight days of gains pulled the key benchmark indices lower in what was a volatile trading session on Wednesday, 30 December 2009. The BSE 30-share Sensex was down 57.74 points or 0.33% to 17,343.82 on that day.

As per provisional figures on NSE, the foreign funds bought shares worth Rs 113.47 crore and domestic funds bought shares worth Rs 69.11 crore on Wednesday.