Market seen opening lower; volatility may rise

The market is seen extending last five days' losses as they play a catch-up with rest of its Asian peers which had witnessed a sell-off on Tuesday, 26 January 2010, when Indian markets were closed for a Republic Holiday. The S&P CNX Nifty futures for January 2010 expiry were trading 92.50 points lower in Singapore. Sentiment on the street may remain edgy following the recent selling drive by the foreign institutional investors.

Asian stocks were mixed today, 27 January 2010, as gains among health-care and consumer companies overshadowed declines by mining shares on lower commodity prices. Key benchmark indices in Japan, Singapore China and Taiwan were up by between 0.16% and 0.43%. However indices in Hong Kong and South Korea slipped 0.99% and 0.12% respectively.

Asian stocks suffered steep losses on Tuesday, 26 January 2010, after China implemented a previously ordered increase in reserve requirements for some banks.

US markets were little changed on Tuesday, 26 January 2010, as news that the senate has scheduled a hearing on President Obama's bank proposal for next week rattled the market.

The Dow Jones industrial average was down 2.57, or less than 0.1%, to 10,194.29. The S&P 500 index was down 4.61 points, or 0.4%, to 1,092.17. The Nasdaq Composite Index was down 7.07 points, or 0.3%, to 2,203.73.

In economic data watch, consumer confidence hit its highest level since September 2008. Its measure of confidence ticked up to 55.9 from an upwardly revised 53.6 in December.

In other news, the national retail federation reported that retail sales is likely to rise 2.5% this year, after a 2.5% drop in 2009.

Back home, the undertone was cautious ahead of derivatives expiry, RBI's monetary policy and earnings from frontline companies.

Equities are likely to remain volatile in a truncated week as traders roll positions in the derivative segment from January 2010 series to February 2010 series ahead of the expiry of the near-month January 2010 contracts on Thursday, 28 January 2010.

The Reserve Bank of India (RBI) will hold its quarterly monetary policy review on 29 January 2010 and is widely expected to increase the cash reserve ratio (CRR) requirements for banks, but economists are divided on when it will raise interest rates. CRR is the level of cash that banks must keep in deposit with the central bank.

A CRR increase would have little impact on market, as investors have mostly factored in at least a 25 basis points increase in banks' reserve requirement and steady interest rates. Increases in both the CRR and interest rates could however weigh on shares of banks as well as sectors such as auto and property on concerns loan demand may slow.

Aggregate results of 670 Indian companies showed 50% advance in net profit on 20% rise in sales in quarter ended December 2009 over the quarter ended December 2008.

Net profit of Hindalco Industries declined 21.60% to Rs 427.10 crore on a 29.56% increase in sales to Rs 5286.10 crore in Q3 December 2009 over Q3 December 2008.

Net profit of Hero Honda Motors rose 78.34% to Rs 535.77 crore on a 32.72% rise in sales to Rs 3814.42 crore in Q3 December 2009 over Q3 December 2008.

Net profit of Sterlite Industries India declined 77.16% to Rs 46.59 crore on a 39.83% increase in sales to Rs 3611.99 crore in Q3 December 2009 over Q3 December 2008.

Steel Authority of India, DLF, and HPCL are among the major result announcement on Wednesday, 27 January 2010.

Core sector, which comprises six key infrastructure industries, grew 6% in December 2009, compared with 5.3% growth in November 2009. The growth, signifying a recovery in industrial manufacturing, was primarily led by an increase in the production of finished steel, cement and electricity last month. The core sector growth stood at 0.7% in December 2008, due to the economic slowdown.

The sector, which accounts for 26.7% of the index of industrial production (IIP), grew 4.8% in April-December 2009 period, against 3.2% in the corresponding period of 2008-09, the commerce and industry ministry data showed on 23 January 2010.

As per reports, the government is considering an across-the-board increase in excise duty in Budget 2010-11, as it faces pressure to withdraw fiscal stimulus measures in the wake of a 16-year high fiscal deficit of 6.8% in the current financial year. One option being considered is an increase in Cenvat rate by 2% while leaving the service tax rate unchanged at 10%, reports citing an unnamed finance ministry official indicated. Cenvat refers to the median excise duty, tax on manufacture of goods, levied on nearly 90% of the goods made in the country.

Also more services could be brought under the tax net to allow the government to keep service tax rates unchanged. An alternative proposal is also under consideration which seeks an increase in excise rates in sectors that are doing well such as automobiles, instead of an across-the-board hike.

Back home, the key benchmark indices extended losses for the fifth straight session on Monday, 25 January 2010, with weak global cues playing the spoilsport. The BSE 30-share Sensex fell 79.22 points or 0.47%.

As per provisional figures on NSE, the foreign funds sold shares worth Rs 1002.60 crore and domestic funds bought shares worth Rs 716.22 crore on Monday, 25 January 2010.