Market may extend Tuesday's gains on firm Asian stocks

The market may extend Tuesday (16 March 2010)'s gains on firm global stocks after U.S. Federal Reserve indicated it plans to hold interest rates low and gave a mildly optimistic assessment of the economy.

Asian stocks rose on Wednesday as the U.S. Federal Reserve pledged to keep borrowing costs near zero for an “extended period” and the yen weakened. The key benchmark indices in China, Hong Kong, Japan, Indonesia, South Korea, Singapore and Taiwan rose by between 0.25% to 1.55%.

The US markets closed higher on Tuesday, 16 March 2010 after the Federal Reserve held benchmark rates near zero and renewed its pledge to keep them exceptionally low for an extended period. The S&P 500 closed at highest levels since October 2008. The dollar index slipped to a fresh session low also helped sentiment.

In other important economic data, Housing starts for February hit a higher-than-expected rate of 5.75 lakh and building permits for February made a smaller-than-expected dip to an annualized rate of 6.12 lakh. The Dow Jones Industrial Average closed 43.83 points or 0.41% higher at 10,685.98. The Nasdaq Composite ended at 2,378.01, up 15.80 points or 0.67% and the S&P 500 was at 1,159.46, up 8.95 points or 0.78%.

The US Federal Reserve renewed its pledge on Tuesday to keep interest rates near zero for an "extended period" even as it sounded more upbeat about jobs. Still, it repeated its view that the economy's recovery would likely be moderate for a time and that inflation was likely to remain subdued. The US Central Bank said that the Fed's policy continues to anticipate that economic conditions, including low rates of resource utilisation, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the Federal funds rate for an extended period.

Close home, the Q4 March 2010 advance tax payment numbers of top Indian firms were encouraging. Reliance Industries has paid Rs 770 crore as advance tax for the March quarter compared with Rs 365 crore a year ago. Infosys' tax outgo has doubled to Rs 250 crore from Rs 125 crore. Tata Consultancy Services paid Rs 178 crore, compared from Rs 53 crore earlier. State-run Union Bank of India paid Rs 185 crore compared with Rs 253 crore a year ago. ICICI Bank's Q3 advance tax stood at Rs 350 crore versus Rs 250 crore a year ago. Asian Paints paid Rs 60 crore, versus Rs 43 crore year earlier.

State Bank of India has paid Rs 1857 crore verses Rs 1810. HDFC paid Rs 280 crore, unchanged from a year earlier. Tata Motors paid Rs 115 crore versus Nil a year ago. Bank of Baroda paid Rs 300 crore verses Rs 280. Zee Entertainment Enterprises paid Rs 97 crore versus Rs 109. Tata Steel paid Rs 513 crore versus Rs 406 crore. L&T paid Rs 270 crore versus Rs 275 crore. Bajaj Auto paid Rs 177 crore versus Rs 60 crore. M&M paid Rs 235 crore versus nil a year earlier.

Cement maker ACC paid Rs 330 crore compared to Rs 340 crore a year ago. Ambuja Cement paid Rs 120 crore, compared with Rs 125 crore a year ago. Aditya Birla Group firm Grasim Industries paid Rs 216 crore as advance tax in the period under review, as compared to Rs 65 crore a year ago. Life Insurance Corp of India (LIC) has paid Rs 864 crore as advance tax for the March quarter, compared with Rs 810 crore year ago.

On the macro front, the headline inflation topped expectations and came within touching distance of double digits in February 2010, making a rate increase by the Reserve Bank all but inevitable at its scheduled April 2010 policy review. Annual wholesale price inflation accelerated to 9.89% in February, the highest since October 2008 and well above the Reserve Bank of India's end-March projection of 8.5% and the 8.56% January reading.

The inflation data comes on the heels of a 16.7% annual jump in industrial output in January, with the unexpectedly strong economic pickup also backing the case for the central bank to raise policy rates by at least 25 basis points. The December inflation figure was revised upwards to 8.1% from 7.3%. Rising inflation and the government's plan to borrow a record $100 billion in the fiscal year that starts 1 April 2010, most of which is expected in the first half, have weighed on bond prices.

Finance Minister Pranab Mukherjee on Tuesday expressed hope that the economy would soon return to a high growth trajectory , but cautioned that high inflation and heavy borrowings posed significant challenges. India could see double-digit inflation in March, Finance Minister said.

C Rangarajan, chairman of Prime Minister's economic advisory council, on Tuesday expressed concern over rising inflation and said he is hopeful that the numbers will come down in a few months because of the decline in food prices.

Meanwhile, Railway minister Mamata Banerjee has reportedly refused to include any of the public sector companies under her ministry in the government's divestment plan, a development that could force the government to meet its sell-off target for the next fiscal from fewer companies.

The finance ministry has reportedly circulated a proposal that aims to ask state-run banks to exit noncore businesses, notably insurance, to force greater capital efficiency and ensure that periodic capital infusion into them goes into increasing the spread of banking rather than propping up money-losing ventures.

The key benchmark indices attained their highest closing levels in nearly two months in a late surge on Tuesday, 16 March 2010 as encouraging advance tax figures of top Indian firms for Q4 March 2010 indicated better fourth quarter results. Higher European stocks aided the rally on the domestic bourses. The BSE 30-share Sensex was up 218.19 points or 1.27% to 17,383.18, its highest since 20 January 2010 on that day.

As per provisional figures on NSE, foreign funds bought shares worth Rs 377.84 crore and domestic funds sold shares worth Rs 158.56 crore on Tuesday