Market seen advancing on strong Asian indices

The market is likely to see an upbeat start mirroring strong gains in Asian equities. The S&P CNX Nifty futures for March 2010 expiry were up 20.50 points in Singapore.

Banking stocks may also hog limelight on reports private sector lenders ICICI Bank Kotak Mahindra Bank as well as the largest mortgage player, Housing Development Finance Corporation (HDFC) have withdrawn special home loan schemes on Thursday, 4 March 2010.

NMDC may see action on reports the government may set the floor price for the stake sale in the company at a 30% to 35% lower than its current stock price.

Asian stocks rose on Friday, 5 March 2010 after US jobless claims fell and the yen weakened on speculation the Bank of Japan will expand easing measures. The key benchmark indices in Hong Kong, South Korea, Singapore, Taiwan, China and Japan, rose by between 0.40% to 1.41%.

US markets logged modest gains on Thursday, 4 March 2010 after better-than-expected retail-sales reports. The Dow Jones industrial average gained 47.38 or 0.5%, to 10,444.14. The Nasdaq Composite index rose 11.63 points or 0.51% to 2,292.31 and the S&P 500 index gained 4.18 points or 0.37% to 1,122.97

In US economic data, initial jobless claims for the week ended 27 February 2010 totaled 469,000, which was in-line with the consensus call. Continuing claims dropped more than expected to 4.50 million.

Factory orders for January 2010 increased 1.7%, which was in stride with the 1.8% increase that had been widely expected.

In its meeting held on 4 March 2010, both Bank of England (BOE) and European Central Bank (ECB) left the key lending rates at record low levels amid sluggish and uncertain economic recovery. BOE maintained its key lending rate at 0.5% while ECB left its key lending rate unchanged at 1%.

Back home, key benchmark indices ended slightly lower on Wednesday, 4 March 2010, after witnessing intraday volatility, ending three-day winning streak. Fears of rise in interest rates following rise in food inflation weighed on the sentiment. Weak global cues also played spoilsport after strong gains on the domestic bourses over the past three trading session. The BSE 30-share Sensex was down 28.31 points or 0.17%.

As per provisional figures on NSE, foreign funds bought shares worth Rs 633.81 crore and domestic funds sold shares worth Rs 635.89 crore on Thursday, 4 March 2010.

Food price index rose 17.87% in the 12 months to 20 February 2010, faster than the annual rise of 17.58% in the previous week, government data released on 4 March 2010 showed. The fuel price index was up 9.59%. The primary articles index rose 15%. Higher inflation is likely to add pressure on the central bank to raise interest rates in April 2010.

Meanwhile, Congress president Sonia Gandhi has reportedly signaled her support for a move to raise taxes on fuel in last year's Budget. The Congress president has reportedly praised finance minister Pranab Mukherjee for a well-balanced budget and said growth is the engine of the Budget

Prime Minister Manmohan Singh had earlier ruled out rolling back a price hike in fuel prices despite pressure from his main allies, saying populist policies would hurt the economy in the long-term. Petrol prices rose about 6% and diesel prices by 7.75% after the government increased factory-gate taxes and import duties on the fuels as part of last week's 2010-11 union budget 2010-11, which stressed fiscal prudence to cut a wide deficit

Business activity among Indian service companies grew at its fastest pace in 17 months in February 2010, climbing for the third straight month as both output and new orders increased, a survey showed on Wednesday, 3 March 2010. The HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to 60.9 in February 2010, its highest since September 2008, and compared with 59 in January 2010. The business expectations sub-index rose for the second straight month to 73.1 in February 2010, its highest in four months. It stood at 66.6 in January 2010.

Finance minister Pranab Mukherjee's bold budgetary proposals 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%.

The Finance Minister in his budget speech on Friday, 26 February 2010 said the government aims to introduce the Goods and Services Tax (GST) and implement the direct tax code from 1 April 2011. The peak rate of excise duties has been raised to 10% from 8% as a first step towards the winding down of fiscal stimulus measures. However, the service tax was retained at 10%. The government has estimated Rs 40000 crore from disinvestment for FY 2010-11. It has estimated Rs 35000 crore from sale of third generation telecom auctions.

The finance minister has raised personal income tax slabs which will result in increase in disposable incomes which in turn may boost consumption. The minimum alternate tax (MAT) has been raised to 18% from 15% of book profits. The fiscal deficit is pegged at 5.5% of GDP for 2010-2011, lower than an estimated 6.8% for the current fiscal year. The planned expenditure will rise 15% in 2010-2011. The increase in non-plan expenditure is only 6% for 2010-2011. The finance minister said the government also aimed to reduce the deficit further to 4.8% of GDP in the year starting 1 April 2011, and to 4.1% in the year from 1 April 2012. He said there is a need to review stimulus and move towards fiscal consolidation and review public spending.

A thrust on the infrastructure sector augurs well from a long-term growth perspective. The Finance Minister has provided Rs 1.73 lakh crore for infrastructure development in 2010-2011, which accounts for over 46% of the total plan expenditure for the year.

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.

Though the Finance Minister said that the government will implement the Direct Tax Code from 1 April 2011, there is no clarity on actual changes in direct taxes from 1 April 2011. Further, there is also uncertainty with regards to rates under the new GST. One really does not know what the Central GST rate will be in April 2011. States also will charge State GST on the same base as that of Central GST. So the States will have a big say in fixing the rate. It has also to be a revenue neutral rate (RNR) which therefore will involve a lot of arithmetical exercise involving all the taxes which will be subsumed in the GST. It is most uncertain what it will be.

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 latest hike in petrol and diesel prices will further increase headline inflation. Higher inflation will put further pressure on interest rates which in turn may impact corporate and consumer confidence. However, Prime Minister Manmohan Singh on Monday tried to allay fears of fuel price hike stoking inflation. He said the direct effect on the Wholesale Price Index (WPI) will be no more than 0.4%.

Food prices will be keenly watched in coming weeks for the second and third round impacts of the fuel price rise. Market men see a 25 basis points hike in the repo and reverse repo rates each by the RBI at the April 2010 policy review.

The economy is likely to do better in the quarter to March than the three preceding quarters, Finance Secretary Ashok Chawla said on Friday 26 February 2010. The economy grew a slower than expected 6% annually in the December quarter, data showed on Friday.

The manufacturing industry in February 2010 grew at its fastest pace in 20 months, expanding for the third month thanks to expanding output and new orders, a survey showed. The HSBC Markit Purchasing Managers' Index , based on a survey of 500 companies, rose to 58.5 in February, its strongest reading since June 2008, from 57.7 in January. A reading above 50 means activity is expanding.

Exports rose an annual 11.5% in January 2010 to $14.3 billion, the third consecutive rise after 13 straight months of decline, the government said on Tuesday. Imports rose 35.5% from a year earlier to $24.7 billion. The trade deficit stood at $10.4 billion in January compared with $5.4 billion a year earlier. Exports for April-January, the first 10 months of the 2009/10 fiscal year, were down 17.8% at $131.9 billion from the same period in the previous year.