Market may remain volatile; food inflation data eyed

The market may open flat to slightly higher on mixed Asian cues. US stocks closed higher on Wednesday, 10 March 2010. Closer home, the government will unveil data on some wholesale price indices for the year through 27 February 2010 viz. the food price index, the primary articles index and the fuel price index at 12:00 IST today.

The wholesale price inflation is unlikely to touch double digits by end-March, M. Govinda Rao, a member of the Prime Minister's Economic Advisory Council, said on Wednesday. The wholesale price index inflation, reached 8.56 % in January 2010.

Chief Economic Advisor Kaushik Basu on Tuesday, 9 March 2010, said inflation would ease by April 2010, with low fiscal deficit and a good rabi (winter) crop improving food supplies. In a couple of months, the slightly lower fiscal deficit will begin to counter inflation, he added. Speaking on the sidelines of a conference in New Delhi Basu said inflation is likely to average 4% in the current financial year.

The industrial output data will be announced by the government on Friday, 12 March 2010 which is expected to rise 16.65% in January 2010 from a year earlier. Industrial output data rose 16.8% in December 2010 over a year earlier.

A strong rise in the output, a 7.2% government growth forecast for the 2009-10 financial year and inflation worries would make for a strong case for the central bank to hike benchmark rates like repo and reverse repo at its April policy review.

Market expectations regarding a possible rate hike in April remain unchanged, after the Reserve Bank of India (RBI) resorted to a sharper than expected 75 basis point hike in cash reserve requirements for banks at its January meeting. Market watchers expect the RBI's next move will be to raise both its benchmark lending and borrowing rates rates by at least 25 bps each to 5.00% and 3.50% respectively.

However, the newly elected president of industry body FICCI Rajan Bharti Mittal said on Monday there's no room for hardening of interest rates and the Reserve Bank of India should maintain status quo on the rates to allow the industry to make fresh investments. He added that fresh investment announcement have begun across sectors and further increase in interest rates will only hamper economic growth.

Reserve Bank of India (RBI) Governor D Subbarao on Monday, 8 March 2010, said inflation should moderate in the coming months. He said the central bank will ensure that interest rate levels do not have a negative impact on the competitiveness of the economy. Should India need to manage inflationary expectations, the central bank could turn to its traditional mix of policy tools including use of both liquidity and cash reserve requirements, he said.

Finance minister Pranab Mukherjee's budgetary proposals late last month offered a progressive cut in fiscal deficit over the next three fiscal years, changed personal tax rates lifting disposable incomes in the hand of individuals and reduced surcharge on corporate tax for domestic companies to 7.5% from 10%.

Meanwhile, the follow-on public offer (FPO) of iron ore miner NMDC received tepid response which was subscribed 17% on the first day of the issue on Wednesday, NSE data showed. 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 company's FPO will close on Friday, 12 March 2010. The price band has been fixed between Rs 300 and 350.

After the Union government approval, the board of state-owned telecom company Bharat Sanchar Nigam (BSNL) on Wednesday cleared a proposal for the divestment of 30% government equity in it, as suggested by a committee set up under Sam Pitroda, the prime minister's telecom and infrastructure advisor. The board also accepted the three-member Pitroda panel's proposal to reduce BSNL's 300,000 staffers by a third. In addition, it accepted the Pitroda recommendation to have a contract-based appointment system for top management, separate positions for MD and CEO and a formation of an advisory board.

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.

Meanwhile, 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.

Asian markets were mixed on Thursday amid mixed economic news and after U.S. stocks closed with small gains following a report that companies cut their inventories. Japan's Nikkei 225 stock average rose 0.89%. The government reported Thursday that Japan's economy, the world's second biggest, expanded at a slower pace in the final three months of last year than initially estimated.

The Shanghai composite index rose 0.19%. China's inflation spiked in February, raising the chances Beijing will need to cool the country's economic recovery. South Korea's benchmark index Kospi was flat after the country's central bank left its key interest rate at a record low Thursday.

The key benchmark indices in Hong Kong and Taiwan fell by between 0.04% to 0.06%. Indonesia's Jakarta Composite rose 0.27%.

The US stocks closed higher on Wednesday, 10 March 2010 led by financials and technology stocks. Staples and telecoms were the biggest decliners. At the end of trade the Dow closed flat at 10,567. Nasdaq rose 0.75% and the S&P 500 index gained 0.45%. In economic news, wholesales inventories unexpectedly fell 0.2% in January as sales rose to their highest level since October 2008. Economists had expected to see a 0.2-percent increase in inventories. In other data, mortgage applications rose last week even as mortgage rates rose.

The industry output figures for Italy and France were stronger than expected in January but analysts said there was little in the data to suggest a broader pick-up in euro zone economic growth.

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 benchmark indices eked out small gains mimicking mild gains in global stocks on Wednesday, 10 March 2010. The BSE 30-share Sensex rose 45.79 points or 0.27% to 17,098.33 on that day.

As per provisional figures on NSE, foreign funds bought shares worth Rs 364.36 crore and domestic funds sold shares worth Rs 375.42 crore on Wednesday.