Market may open higher on firm Asian stocks; Union budget 2010-11 eyed

The market may open higher tracking gains in most of the Asian stocks. The Union budget 2010-11 to be tabled in the parliament at 11:00 IST today by the finance minister Pranab Mukherjee will decide the further course of the day's trade.

As far the Union Budget 2010-2011 is concerned, the government may announce increase in excise duties as a first step towards a gradual winding down of fiscal stimulus measures. It may also raise the service tax rate to 12% from 10%. It may be recalled that the government had slashed the Central Value Added Tax (Cenvat) rate for excise duty from 14% to 8% in two rounds starting in December 2008. It had also cut service tax by 2 percentage points. These reductions were effected in order to provide a stimulus to domestic industry. Since the overall prospects for growth are much brighter today, the finance minister may withdraw a part of the stimulus in order to boost tax revenue.

The Finance Minster may project a lower fiscal deficit for 2010-11 based on higher revenue projections due to economic rebound. The government's revenue will also get a boosts from sale of 3G auction and divestment. It remains to be seen if there are structural reforms to reduce the subsidy burden such as decontrol of petrol and diesel prices as recommended by the Kirit Parikh committee recently.

The fate of three important fiscal bills, which had been stalled by the Left parties, will be closely watched. These are the Pension Fund Regulatory and Development Authority (PFRDA) Bill, Insurance Bill and Banking Regulation (Amendment) Bill.

Analysts and economists expect the Finance Minister to provide a road map for the introduction of the key direct and indirect tax reforms viz. the direct tax code (DTC) and the Goods & Services Tax (GST) in the Budget.

As far as government expenditure is concerned, the thrust areas could be agriculture, water resources, power, roads & other infrastructure projects and social sector schemes.

The Economic Survey tabled in the parliament on Thursday said capital inflows from advanced economies could be a challenge for India as they might lead to overheating of the economy. With interest rates at historic lows in most advanced economies, capital flows from these countries are finding their way into the fast growing Asian economies, including India.

It added that issue that arises is whether inflows are in excess of the domestic absorptive capacity or this could lead to overheating of the economy. The Survey added that this can also be looked at as the "impossible trinity" dilemma of policy choice between price stability, exchange rate stability and capital mobility.

Meanwhile, the 13th Finance Commission recommended increase in states share to 32% of Central tax proceeds from the current level of 30.5%. The Commission said the government must cut its fiscal deficit to 3% of the GDP by 2013/14 and eliminate its revenue deficit in the year after. It also said the government must also cap its total debt at 68% of the GDP by the 2014/15 financial year. These recommendations have been accepted in principle by the government, the Commission said.

The Commission has projected fiscal deficit of 5.7% for the the year to March 2011 and 4.8% for the year through March 2012. The fiscal deficit should drop to 4.2% in 2012/13 and to 3% in 2013/14, it said. The Commission said the government should list all low-yielding state firms

The economic survey for the 2009-10 financial year urged a calibrated exit from fiscal stimulus, which cushioned India's economy from the worst of the global downturn. The report, presented in parliament ahead of Friday's general budget, forecast economic growth at 8.25-8.75% in 2010/11, accelerating to over 9% the year after, compared with projected growth of 7.2-7.5% in the current year.

It also highlighted the possibility of the economy achieving a double-digit growth within the next four years, underscoring the view that the economy is on a firm footing.

Meanwhile, the infrastructure sector output grew 9.4% in January 2010 from a year earlier, higher than an upwardly revised annual growth of 6.4% in December 2009, government data showed on Thursday. During April-January, the first 10 months of the 2009/10 fiscal year, output rose 5.4% from 3% a year ago. The infrastructure sector accounts for 26.7% of India's industrial output.

The prices of sugar and wheat have shown a falling trend in last couple of days, Indian Farm Minister Sharad Pawar said on Thursday. Latest government data showed food price index rose 17.58% in the 12 months to 13 February 2010.

Most of the Asian stocks edged higher as Japanese manufacturers in January increased production at the fastest pace. The key benchmark indices in China, Hong Kong, Japan, South Korea and Taiwan rose by between 0.07% to 1.17%. But, key benchmark indices in Indonesia and Singapore fell by between 0.23% to 1.18%.

Japanese manufacturers increased production at the fastest pace since May and retail sales snapped a 16-month slump, signaling the recovery is intact even as the government calls for more action to fight deflation. Factory output rose 2.5?% in January from a month earlier, the 11th straight gain and the longest streak in more than 12 years, the Trade Ministry said today in Tokyo. Retail sales unexpectedly jumped 2.6% from a year earlier.

US markets, stocks ended off intra-session lows on Thursday, 25 February 2010 as the dollar slipped after an early selloff triggered by higher jobless claims and worries about Greece. Initial jobless claims rose by 22,000, much more than expected. The Dow ended with just 0.5%, after being down more than 180 points earlier. The S&P 500 shut shop down 0.2% and the Nasdaq closed flat.

The European Commission left its 2010 growth outlook for the euro zone unchanged on Thursday despite concerns about Greece and other reports painting an increasingly grim picture

Closer home, the key benchmark indices closed flat after moving between positive and negative zone in intraday trade on Thursday, 25 February 2010 as investors preferred to stay on the sidelines ahead of the Budget. Finance Ministry's Economic Survey for 2009-2010 tabled in the parliament predicted that India would bounce back to a high 9% growth in 2011-12 and is on its way to becoming the world's fastest growing economy in four years. The BSE 30-share Sensex was down 1.77 points or 0.01% to 16,254.20 on that day.

As per provisional figures on NSE, foreign funds sold shares worth Rs 594.78 crore and domestic funds bought shares worth Rs 325.92 crore on Thursday.