Market may remain volatile

The market may remain volatile on mixed Asian stocks after US stocks closed slightly lower on Thursday, 25 March 2010. The food prices eased for the third straight week in mid-March while fuel inflation remained steady, but the Reserve Bank is still seen raising rates the second time in as many months in April. The Reserve Bank of India (RBI) surprised markets with a 25 basis point hike in its key lending rate last week to tame headline inflation that is near 10% and warned of a build up in demand-side pressures on the economy.

Data on Thursday showed the fuel price index rose 12.68% in the year to 13 March 2010, flat on the week. The government had raised motor fuel prices in late February.

The food price index rose an annual 16.22% in the year to 13 March 2010, lower than the previous week's reading of 16.30%. The primary articles index was up 13.88% for the latest period, compared with 14.16% in the previous week.

After the most recent rate hike, analysts are betting the RBI will raise rates to a slightly higher level this year than earlier expected. Most now see rates being raised by a total of 100 basis points by the end of 2010.

The Reserve Bank of India (RBI) said on Thursday it was imperative to curb inflationary pressures fuelled by increased capacity utilisation and rising energy and commodity prices.

Earlier on Thursday, a document from the country's top policy panel said India should aim for an average 5% inflation and this was a target "quite within the realm of possibilities".

A week after the RBI unexpectedly lifted its key rates, it said food prices were moderating but were still high and the pace of inflation in non-food manufactured goods was accelerating.

Coming back to stocks, encouraging Q4 March 2010 advance tax figures of top Indian firms, indicating good Q4 March 2010 results, boosted equities over the past few days. The market 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.

The stock market gave a thumbs up to 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 growth of about 8% and inflation of about 4.5% for 2010-2011. Global credit rating agency Standard & Poor's, last week, revised the outlook on India to stable from negative due to improved government finances.

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.

Asian markets were mixed Friday after renewed worries about Greece's debt problems led to a disappointing finish on Wall Street. The key benchmark indices in China and Hong Kong fell by between 1.12% to 1.23%. But, the key benchmark indices in Singapore and Japan arose by between 0.4% to 0.7%.

Deflation continued in Japan as February consumer prices released Friday showed a decline for the 12th straight month in February. Core CPI, which excludes fresh food, dropped 1.2%from a year earlier.

Euro zone leaders agreed on Thursday to create a joint financial safety net with the IMF to help debt-ridden Greece and to try to restore confidence in their common currency after weeks of wrangling.

US markets ended slightly lower on strength in dollar volume on Thursday, 25 March 2010. The Dow Jones rose 5.06 points or 0.05% to 10,841.21. The Nasdaq declined 1.35 points or 0.06% to 2,397.41 and the S&P 500 fell 1.99 points or 0.17% to 1,165.73. In economic news, initial jobless claims for the week ended 20 March 2010 totaled 442,000, which was a bit less than the expected total of 450,000 and down 14,000 from the prior week. Continuing claims came in at 4.65 million down roughly 54,000.

Close home, the key benchmark indices reversed intraday losses and surged to fresh intraday highs in late trade on Thursday, 25 March 2010 tracking higher European stocks and gains in US index futures. The BSE 30-share Sensex rose 107.83 points or 0.62% to 17568.85 on that day.

As per provisional figures on NSE, foreign funds bought shares worth Rs 653.22 crore and domestic funds sold shares worth Rs 156.19 crore on Thursday.