Market may nudge higher on firm Asian stocks

The market may edge higher tracking gains in Asian stocks which surged after the latest data showed a jump in manufacturing activity across Asia, euro zone and in US. US markets rose on Monday after a positive manufacturing report. Closer home, strong auto sales in January 2010 and the nation's exports showing positive growth for the second month in a row in December 2009, may also boost investor sentiment.

The manufacturing in January 2010 grew at its fastest pace in almost 1-1/2 years, driven by a sharp rise in new export orders that are supporting a recovery in the industrial sector, a survey showed on Monday. The HSBC Markit Purchasing Managers' Index (PMI), based on a survey of 500 Indian companies, rose to 57.7 in January, its strongest reading since August 2008 and up from 55.6 in December.

Exports continued to rebound, rising an annual 9.3% in December to $14.6 billion, their second consecutive monthly rise, although the pace of annual growth was slower than the 18.2% registered in November. Imports increased by 27.2% in December from a year earlier to $24.75 billion while the trade deficit shrunk by a little over 28 percent to $76.24 billion for the April- December 2009 period.

The HSBC Purchasing Managers' Index mirrored the positive export performance, with a more-than 5 point jump in the new export orders component, a sign that growth in manufacturing sector is increasingly fuelled by exports.

Rising prosperity will increasingly put pressure on food supply in India and the country urgently needs to boost farm productivity, Prime Minister Manmohan Singh said on Monday. After last year's failed monsoon rains, food prices have jumped in India, one of the world's top consumers of sugar, wheat, edible oils, rice and lentils, triggering protests in poorer regions and putting pressure on authorities to tighten monetary supply. He urged state governments to take steps to boost food output and tackle shortages of essential commodities.

On Friday 29 January 2010, the Reserve Bank of India raised the cash reserve ratio for banks by a higher-than-expected 75 basis points in an effort to soak up excess liquidity, and ramped up its forecast for GDP growth in the current fiscal year through March to 7.5% from its earlier forecast of 6%. It lifted its wholesale price index inflation forecast for the end of the fiscal year in March to 8.5% from 6.5%

Meanwhile, the Reserve Bank of India (RBI) governor Duvvuri Subbarao has for the first time, said the nation may have to take some measures towards capital control in the short term to avoid stark economic imbalances after acknowledging in the past the role played by fund flows in worsening inflation, boosting asset prices and destroying industry competitiveness.

The RBI will target inflation in the coming months, Subbarao said on Monday. Subbarao also said it is important for the government to withdraw the stimulus and that the government and central bank would have to coordinate in withdrawing stimulus. He reiterated that the economy is back to growth and added that the challenge is to accelerate momentum.

The Reserve Bank of India (RBI) will adjust monetary policy outside of its quarterly review cycle only under extraordinary circumstances, a deputy governor Subir Gokarn said on Monday.

Asian markets rose on Tuesday after a positive manufacturing report in US. The key benchmark indices in China, Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan rose by between 0.54% to 1.88%.

In US markets, the Dow kicked off February with a triple digit gain after some strong earnings report and a positive manufacturing report. The Dow added 118.20 points, or 1.2%, to 10,185.53. The broader Standard & Poor's 500 Index gained 15.32 points, or 1.4%, to 1,089.19. The Nasdaq Composite Index advanced 23.85 points, or 1.1%, to 2,171.20.

In encouraging economic data, the ISM manufacturing index for January hit a 5 year high of 58.4, which is stronger than expected 55.5. Personal income and spending rose, while construction spending fell 1.2% for the month of December.

Also, the White House yesterday revealed its 2010 budget, which showed the deficit is likely to soar to 1.56 trillion dollars this year, but will fall to half that by the time President Obama's term ends in 2012. President Barack Obama pledged on Monday to halve a record 2010 budget deficit by the end of his first term in office, but made tackling double-digit unemployment his immediate priority with a spending plan that risked public ire and a rough battle in Congress.

Closer home, the key benchmark indices witnessed a divergent trend on Monday, 1 February 2010 with BSE Sensex closing flat and S&P CNX Nifty eking out small gains after a strong intraday rebound triggered by upbeat economic data and higher monthly sales figures from two auto majors Maruti Suzuki and Mahindra & Mahindra. The BSE 30-share Sensex was down 1.93 points or 0.01% to 16,356.03 on that day.

As per provisional figures on NSE, foreign funds sold shares worth Rs 494.66 crore and domestic funds bought shares worth Rs 199.83 crore on Monday.