Market may remain cautious ahead of Fed meet

The market may remain cautious ahead of the outcome of two day Federal Reserve meeting which began on Tuesday, 15 December 2009. High inflation remained a major concern for policymakers.

Exports broke their fall in November 2009 after 13 months of decline, adding to the flurry of positive economic data, but the news was greeted with caution by policymakers and exporters. Helped by Christmas buying, exports grew 18.3% to $13.2 billion in November from a small base last year.

On Tuesday, Moody's Investors Services raised its rating outlook on India's local currency to positive from stable, saying the move was “prompted by increasing evidence that the Indian economy has demonstrated its resilience to the global crisis and is expected to resume a high growth path with its underlying credit metrics relatively intact.”

Many Indian firms have reportedly paid higher advance tax in the third installment. As per media reports, Tata Motors has paid Rs 100 crore in third quarter versus Nil payment in the same period last year. Mahindra & Mahindra paid Rs 195 crore versus Rs 4.5 crore. Tata Steel paid Rs 650 crore versus Rs 260 crore. Hindalco Industries paid Rs 100 crore versus Rs 40 crore. Hindustan Unilever paid Rs 200 crore versus Rs 155 crore, Larsen & Toubro paid Rs 270 crore versus Rs 210 crore, Grasim Industries Q3 advance tax at Rs 150 crore versus Rs 75 crore, UltraTech Cement paid Rs 90 crore versus Rs 65 crore, HDFC's Q3 advance tax was at Rs 320 crore versus Rs 280 crore.

Bajaj Auto paid Rs 320 crore versus Rs 105 crore. The country's largest private sector company Reliance Industries paid Rs 850 crore, versus 450 crore year-ago period. Tata Consultancy Services' Q3 advance tax was at Rs 177 crore versus Rs 129 crore. ACC's Q3 advance tax was at Rs 110 crore versus Rs 125 crore. HDFC Bank's Q3 advance tax jumped to Rs 400 crore from Rs 300 crore. State Bank of India Q3 advance tax was at Rs 1795 crore versus Rs 1700 crore. ICICI Bank's Q3 advance tax fell to Rs 301 crore versus Rs 625 crore.

The government will take steps to tame rising prices and enable the economy to recover faster, the finance minister Pranab Mukherjee said on Tuesday, as concerns about inflationary pressures spilling over to the broader economy mount. Pranab Mukherjee also said the government intends to push tax reforms and cut its already-bloated fiscal deficit to 3 % of gross domestic product after 2011/12 fiscal year, from 6.8 % estimated for the current financial year ending March 2010.

Inflation and high fiscal deficit are major risks to the government's ambitious plan to ratchet up economic growth back to 9 % level seen between 2005/06 and 2007/08. Latest government data shows food inflation at 16.7 % in November 2009, which have pushed the headline inflation to 4.78 %.

The Bombay Stock Exchange (BSE) on Tuesday said it will advance trading hours by 10 minutes from 18 December 2009. Trading in the equity and equity derivatives segment will commence from 9:45 IST onwards, instead of the present timing of 9:55 IST, the BSE said.

Meanwhile, the initial public offer of DB Corp, India's second largest regional newspaper, was subscribed a massive 39.54 times. The company has set a price band of Rs 185-212 a share.

Asian stocks were trading mixed on Wednesday as caution prevailed ahead of the Federal Reserve meeting. The key benchmark indices in China, Hong Kong, Indionesia and South Korea fell by between 0.1% to 0.87%. But, the key benchmark indices in Japan, Singapore and Taiwan rose by between 0.17% to 1.63%.

US markets snapped a four-day winning streak on Tuesday as an inflation report stoked interest rate fears. General Electric delivered a weak outlook. GE told investors that it expects revenue to be flat next year. The Dow was down 49.05 points, or 0.5%, to 10,452. The S&P 500 index was down 6.18 points, or 0.6%, to 1,107.93, and the Nasdaq Composite Index was down 11.05 points, or 0.5%, to 2,201.05.

In important macro data from the US, inflation at the wholesale level surged 1.8% in November 2009, reflecting price jumps in energy and other products. The jump in inflation comes as the federal reserve kicked off a two-day monetary-policy meeting. Production climbed 0.8 % in November 2009 in the U.S., the fourth gain in the past five months, the Federal Reserve said yesterday in Washington.

Federal Reserve Chairman Ben Bernanke, in a response to a lawmaker's questions made public on Tuesday, said the U.S. economy is operating so far beneath its potential that inflation is unlikely to become a problem.

A key event this week is a regular two-day meeting of the US Federal Reserve Meeting which began on Tuesday, 15 December 2009. The Fed is expected to maintain its pledge to keep US interest rates close to zero for "an extended period" after Chairman Ben Bernanke warned that US economic recovery still faced "formidable headwinds", such as tight credit conditions and rising unemployment. Bernanke's re-appointment as chairman of the Federal Reserve by the Senate banking committee is expected on Thursday.

Investors, meanwhile, are increasingly wondering when Bernanke will signal any changes to the exceptionally loose US monetary policies and liquidity conditions that have propelled asset markets higher this year.

The key benchmark indices slumped, reversing an initial rally on Tuesday 15 December 2009 as the dollar index, which tracks the greenback against a trade-weighted basket of six major counterparts, climbed roughly half a percent to a six-week high of 76.741. The dollar's strength sparked fears of unwinding of dollar carry trade in which investors borrow in US dollars and invest it in high-yielding currencies and assets elsewhere. The BSE Sensex fell 220.39 points or 1.29% to 16877.16 on that day.

As per provisional figures on NSE, the foreign funds sold shares worth Rs 6.14 crore and domestic funds bought shares worth Rs 38.69 crore on Tuesday.