Market may remain volatile on mixed Asian stocks

The market may remain volatile on mixed Asian stocks. Back home, the food price inflation eased for the second straight week in early March but fuel inflation rose, maintaining the case for the Reserve Bank of India (RBI) to raise borrowing rates at its April policy review. Steepening inflation has seen markets pricing in a 25 to 50 basis point interest rate hike in April. Data released on Thursday showed the food price index rose 16.30% in the year to 6 March 2010, lower than an annual rise of 17.81% in the previous week.

It was the second straight weekly easing of food price inflation and analysts expected the trend to continue, echoing policymakers' comments that high inflation was due to supply shortages and would cool off as the new, winter-sown harvest reached the market.

The fuel price index rose 12.68 % in the year to 6 March 2010, up from an annual rise of 11.38% in the previous week. The federal government had hiked state-set motor fuel prices at the end of February.

Key policymakers have said headline inflation would ease over the next two months, after the finance minister said it could top 10 % in March following a reading of 9.89% in February. But in a sign the government was giving the green light to a rate hike, a top policy adviser said the Reserve Bank of India ought to carefully consider a return to a normal monetary policy.

Government officials have had until recently called for the Reserve Bank of India to ensure any possible rate hike does not put the country's economic recovery at risk.The RBI has to balance managing the federal government's record $100 billion borrowing plan for the 2010/11 fiscal year with supporting growth and taming inflation.

Global rating agency Standard & Poor's revised India's rating outlook to stable from negative. S&P affirmed long-term and short-term sovereign credit ratings on India.The revision in outlook by S&P reflects its view that India's fiscal position could now begin to recover and that its economy will remain on a strong growth path. The government budget targets a general government (including central and state governments) deficit of 8.3% in the fiscal year ending 31 March 2011, from 9.8% in the previous fiscal year, S&P said. S&P also estimated that India's gross domestic product will grow 8% in the year ending March 31, 2011, higher than its forecast earlier, adding India's external position was resilient. Even so, India's ratings continue to be constrained by the government's high debt burden and deficit, as well as India's weak fiscal profile, the rating agency said.

Meanwhile, commerce and Industry Minister Anand Sharma urged U.S. companies on Thursday to jump on board India's rapid growth and help it expand its manufacturing base.

Coming back to stocks, encouraging Q4 March 2010 advance tax figures of top Indian firms, indicating good Q4 March 2010 results, boosted the bourses in the past three days. The Sensex hit a 2-month high on Wednesday, 17 March 2010. The market has also witnessed a strong post-Budget rally driven by sustained buying by foreign funds since the presentation of the Union Budget 2010-2011 on 26 February 2010. As per data from the stock exchanges, foreign institutional investors (FIIs) bought stocks worth a net Rs 10041.13 crore this month, till 17 March 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.

Several companies have paid a higher tax this quarter according to the preliminary data, indicating better fourth quarter results. 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.

Asian stocks were mixed on Friday, after a firm start with investor expectations of a steady economic recovery. U.S. labor and inflation reports supported a prevailing view that monetary policy will remain growth-friendly and liquidity abundant. The key benchmark indices in China, Japan, Indonesia, and Taiwan fell by between 0.15% to 0.36%. But, the key benchmark indices in Hong Kong, South Korea, Singapore rose by between 0.23% to 0.67%.

The Greek finance ministry denied a media report on Thursday that said the heavily indebted country was planning on going to the International Monetary Fund for aid in early April.

In the US markets on Thursday, 18 March 2010, action was choppy and lackluster but the Dow still mustered enough support in late trade to make a fresh 52-week high. Markets opened higher after jobless claims came in line with estimates and the CPI for February came in flat. But lost steam midday as the dollar gained.In other corporate news, FedEx, Nike and Guess all announced better-than-expected earnings.

The Dow Jones Industrial Average closed 45.50 points or 0.42% higher at 10,779.17. The Nasdaq Composite ended at 2,391.28, up 2.19 points or 0.09%. But, the S&P 500 was at 1,165.83, down 0.38 points or 0.03%.

Close home, the key benchmark indices scaled two-month closing highs on Thursday, 18 March 2010 after global rating agency Standard & Poor's revised India's rating outlook to stable from negative. S&P affirmed long-term and short-term sovereign credit ratings on India. The BSE 30-share Sensex was up 29.18 points or 0.17% to 17,519.26, its highest closing since 18 January 2010 on that day.

As per provisional figures on NSE, foreign funds bought shares worth Rs 484.67 crore and domestic funds sold shares worth Rs 53.15 crore on Thursday.