Market seen opening firm on strong global cues

The market is likely to see a buoyant start following upbeat US economic data which propelled the Nasdaq Composite index to its highest close in 18 months. The S&P CNX Nifty futures for March 2010 expiry were up 61 points in Singapore.

Asian stocks rose Monday as better-than-estimated US jobs data and a pledge by French President Nicolas Sarkozy to support Greece boosted confidence in the global recovery. The key benchmark indices in Hong Kong, South Korea, Singapore, Taiwan, Indonesia, China and Japan rose by between 0.88% to 1.99%.

US stocks jumped and the Nasdaq soared to its highest close in 18 months on Friday, 5 March 2010, as US employers cut fewer jobs than expected and consumers' appetite for credit showed signs of stabilizing. The Dow Jones Industrial Average climbed 122.06 points, or 1.17%, to 10,566.20 and the Standard & Poor's 500 Index gained 15.73 points, or 1.40%, to 1,138.70. The Nasdaq Composite Index rose 34.04 points, or 1.48%, to 2,326.35

US economic data showed non-farm payrolls shed 36,000 jobs in February 2010 compared with market expectations for a loss of 50,000. The US jobless rate was at 9.7% in February 2010, as against analysts' projection of 9.8% increase.

Federal Reserve data showed that consumer credit rose to $4.96 billion in January 2010, its first increase in a year and the largest for any month since mid-2008.

In global fund news, investors pulled money out of Chinese and European equity funds last week following policy risks and fears about Greece's debt problems, EPFR Global said on Friday. Emerging equity funds had a third straight week of inflows, with a relatively modest $240 million flowing into the funds. Year-to-date net inflows have grown to $2.2 billion. Asia ex-Japan, Latin America and EMEA Equity Funds had net inflows ranging from $42 million to $169 million.

China equity funds had $17 million moving out of the door, while BRIC equity funds enjoyed inflows. The year-to-date average weekly inflow into BRIC funds however is less than half of the $190 million averaged in the fourth quarter of 2009.

Economic growth in the 16 countries that use the euro slowed in the fourth quarter, revised official data showed on Thursday, 4 March 2010. Quarterly gross domestic product growth slowed to 0.1% in the final three months of last year from 0.4% in the three months to the end of September, the European Union's Eurostat statistics agency said. However, the yearly drop in GDP in the third quarter was revised to show a deeper decline of 4.1% from the previous reading of 4%.

Back home, the Securities and Exchange Board of India (Sebi) has mandated 100% application money for qualified institutional buyers (QIBs) in public issues from 1 May 2010, with a view to bringing about a level playing field for both large and small investors. In a move to bring greater stability and depth to the stock market, Sebi has decided in principle to allow stock exchanges to introduce physical settlement of equity derivatives. Sebi has also allowed, in principle, the introduction of equity derivatives contracts with tenures of up to five years as well as derivative products based on the volatility indices.

These announcements were made after a Sebi board meeting on Saturday, 6 March 2010 which was also marked by the Finance Minister's visit to the regulator's Mumbai head office.

Meanwhile, Rajan Bharti Mittal, the newly elected president of industry body FICCI said 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.

Going forward liquidity will be a major concern with a spate of new and follow-on offerings and initial public offers to flood the market over the next few months. The government has estimated Rs 40000 crore from disinvestment for FY 2010-11. In the Union Budget on 26 February 2010 the government said it would raise Rs 25,958 crore through disinvestment in the fiscal to March 2010. Of this, it has already raised Rs 13,592 crore through divesting minority stakes in NHPC, Oil India, NTPC and REC.

The follow on public offer (FPO) of NMDC is scheduled to open for subscription on Wednesday, 10 March 2010. The pricing for the disinvestment of 8.38% stake in NMDC will be decided on Monday, 8 March 2010 by an empowered group of ministers headed by finance minister Pranab Mukherjee. Retail investors have largely shunned stake sales by the government in recent weeks in NTPC and REC. As per reports, the floor price for the NMDC IPO could be set at Rs 300, allowing the government to raise about Rs 9,000 crore.

The Indian market would act as a safe heaven for foreign investors as the state of the economy remains quite encouraging. The recent economic data showed surge in manufacturing and services activity in the month of February and rise in exports for the third consecutive month in January 2010.

The government will announce the industrial output data for the month of January 2010 on Friday, 12 March 2010. The data is expected to be robust after the infrastructure sector output which accounts for 26% of the industrial output showed a growth of 9.4% in January 2010 from a year earlier. Industrial output grew 16.8% in December 2009.

Also 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.

The key benchmark indices ended slightly higher in a volatile trading session on Friday, 5 March 2010, as profit taking emerged in frontline stocks after strong intraday gains. The BSE 30-share Sensex was up 22.79 points or 0.13% to 16,994.49, below the psychological 17,000 mark. The S&P CNX Nifty was up 8.45 points or 0.17% to 5088.70

As per provisional figures on NSE, foreign funds bought shares worth Rs 913.34 crore and domestic funds sold shares worth Rs 661.26 crore on Friday, 5 March 2010.

The government said on Friday it will seek parliamentary approval to spend an extra Rs 31780 crore for the fiscal year to end-March 2010, which it plans to fund through savings.

There is no risk that the government will borrow more than planned to fund supplementary spending, Revenue Secretary Sunil Mitra said on Friday. Of the additional spending, Rs 12000 crore would be spent on oil subsidy, Rs 8000 crore on fertiliser subsidy and Rs 2459 crore on food subsidy, among others. The government also sought parliament's nod for Rs 13.67 lakh crore of debt repayment in 2009-10. He further said that no difficulty will arise in achieving divestment target of Rs 40000 crore for FY 2011.The government has estimated Rs 35000 crore from sale of third generation telecom auctions in FY 2011.

Prime Minister Manmohan Singh said on Friday the economy would grow by at least 8% in the year through March 2011. Asia's third largest economy would expand 7.2-7.5% in 2009-10, he told parliament. Singh said prospects for the winter-sown crop are 'very encouraging'. He also said the government must pay good prices to farmers to ensure higher farm production. The prime minister said the government will take all practical measures to bring down food prices.

He said the government will continue commitment to pubic and private investment in agriculture. The prime minster said there is need to find ways and means to stabilise the sugar economy.

A good harvest is likely to bring down food inflation, which accelerated to nearly 18% in late February. The government, facing mounting criticism for rising food prices, is struggling to meet conflicting aims of controlling food inflation and trying to please farmers by paying them attractive prices.

Last week's 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.

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

The government has set its gross market borrowing target for 2010/11 at a record Rs 4.57 lakh crore, up by 1.3% percent from the previous year, sending bond yields into a tizzy and sparking fresh worries on liquidity.

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 budgetary proposals last week 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 fiscal deficit is pegged at 5.5% of GDP for 2010-2011, lower than an estimated 6.8% for the current fiscal year. 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.

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.

Finance Minister Pranab Mukherjee on Wednesday, 3 March 2010 said India's economic recovery is still being driven by public spending and is not yet broad-based, further clouding the debate on the timing of rate hikes by the central bank.

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.