Market may remain choppy; IIP data eyed

The market may open flat to marginally higher on mixed Asian stocks. US stocks closed slightly higher on Thursday, 11 March 2010. Closer home, the January industrial output data is due today which is expected to rise more than 16.5%. Industrial output data rose 16.8% in December 2010 over a year earlier.

Food prices moderated slightly while fuel price inflation accelerated in late February adding pressure on the Reserve Bank of India (RBI) to raise rates at its April policy review. The wholesale price inflation (WPI) is already at 8.56% in January, just above the Reserve Bank of India's (RBI) end-March projection of 8.5%.

The food price index rose 17.81% in the 12 months to 27 February 2010, marginally lower than an annual rise of 17.87% in the previous week. The recent government decision to raise fuel prices has also stoked inflation. The fuel price index rose 11.38% in the 12 months to 27 February 2010, shooting up from an annual rise of 9.59% in the previous week.

Market expectations of a rate hike remain unchanged as traders expect the RBI's next move will be to raise its benchmark lending and borrowing rates by at least 25 bps each to 5% and 3.5% respectively.

The policymakers including the deputy chairman of the planning commission have said earlier this week that food prices will moderate over the next few months. Food prices have moderated only marginally this week, but with fuel prices on the rise, these are now spilling over to the broader economy. This is reflected in the fact that manufacturing price inflation picked up to 6.55% in January from 5% in December. Food prices are making the ruling coalition vulnerable to political attacks.

Sustained buying by foreign funds since the presentation of the Union Budget 2010-2011 on 26 February 2010 has lifted investor sentiment. As per data from the stock exchanges, foreign institutional investors (FIIs) bought stocks worth a net Rs 7511.10 crore this month, till 10 March 2010. The Sensex has garnered 913.76 points or 5.6% since the presentation of the Budget on 26 February 2010.

The stock market has applauded the Union Budget 2010-2011 due to its thrust on infrastructure development, government's pledge to reduce fiscal deficit over the next three years, a smaller-than-expected 2% hike in excise duties, and reduction in taxes for individuals which will boost disposable income. The Finance Minister has assumed a modest GDP of about 8% and inflation of about 4.5% for 2010-2011.

Going ahead, the key triggers for the stock market are structural reforms such as decontrol of petrol and diesel prices, targeting of food subsidies, and financial sector reforms such as increase in foreign direct investment in insurance sector.

The fourth and the last installment of advance tax by India Inc due on 15 March 2010 will give a broad indication of fourth quarter earnings.

Meanwhile, the follow-on public offer (FPO) of iron ore miner NMDC received tepid response. The issue was subscribed 79% by on the second day of the issue on Thursday. The FPO ends today, 12 March 2010. The government is divesting 8.38% stake in NMDC through the FPO as a part of its aggressive divestment drive to raise funds in a bid to bring fiscal deficit down. The price band has been fixed between Rs 300 and 350.

Asian stock markets were mixed on Friday after the Standard & Poor's 500 index closed at a 17-month high with investors worried about inflationary pressures in China. The key benchmark indices in Japan, Singapore and South Korea rose by between 0.08% to 0.41%. But the key benchmark indices in China, Hong Kong, Indonesia and Taiwan fell by between 0.02% to 0.24%.

Investors are wary China may start raising interest rates to keep a lid on mounting inflationary pressures. The data released Thursday showed that China's inflation rate jumped to 2.7% in February over a year earlier from 1.5% in January

The investors are awaiting further insight into the state of the U.S. economic recovery, which they hoped to receive from reports Friday on U.S. retail sales and consumer sentiment figures. The numbers are expected to indicate how big an appetite Americans have for spending.

On Wall Street on Thursday, 11 March 2010, stocks were confined to a narrow trading range for most of the session, but a late bounce in financials pushed the S&P to a 17-month high above the 1,150 mark. The Dow Jones industrial average finished up 44.51 points or 0.4%, to 10,611.84. The S&P 500 index rose 4.63, or 0.4% to 1,150.24. It now stands at its highest level since 1 October 2008. Nasdaq shut 10 points up at 2,368.

On to the economy - initial jobless claims fell by 6,000 last week to 462,000. Meanwhile, continuing claims totaled 4.56 million, which was greater than what was expected. The trade gap shrank 6.6% as oil imports dropped to their lowest level since February 1999. The trade balance for January came in with a 37.3 billion dollars deficit. In other data, and mortgage rates dropped for a second straight week, remaining below 5%.

The chances of a broad overhaul of U.S. financial regulation dimmed on Thursday after bipartisan Senate talks collapsed, jeopardizing a top Obama administration priority

The Greek economy is set to shrink by more than expected this year, the government said on Wednesday, as it braced for nationwide strikes protesting its plans for bringing the country's budget deficit under control.

Closer home, the key benchmarks settled at their highest level in a month and a half on Thursday, 11 March 2010 as sustained buying by foreign funds since the presentation of the Budget late last month underpinned sentiment. The BSE 30-share Sensex rose 69.63 points or 0.41% to 17,167.96, its best close since 20 January 2010.

As per provisional figures on NSE, foreign funds bought shares worth Rs 304.87 crore and domestic funds sold shares worth Rs 202.70 crore on Thursday.