Market may extend gains on positive global cues

The market may edge higher for the second straight day on positive global cues with good earnings reports boosting sentiment. Trading in S&P CNX Nifty index futures on the Singapore stock exchange indicated that the Nifty could gain 18 points at the opening bell. Asian stocks rose on Wednesday, as better-than- estimated results from Elpida Memory Inc. and Apple Inc. boosted confidence in the global economic recovery. The key benchmark indices in China, Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan rose by between 0.01% to 1.54%.

US Stocks ended higher on Tuesday after some good earnings reports. The Dow Jones Industrial Average rose 25.01 points or 0.23% to 11,117.06. The S&P 500 gained 9.65 points or 0.81% to 1207.17. The Nasdaq Composite index rose 20.20 points or 0.81% to 2500.31.

Concern over public debt could prolong the credit crisis although Greece is a special case and should not be compared to other euro zone members, the International Monetary Fund said on Tuesday. The IMF said the health of the global financial system had improved alongside a fragile recovery in the world economy, but that investors' nerves over rising levels of public debt could undermine stability gains made so far.

Back home, investors heaved a sigh of relief after a small hike in short term interest rates and the cash reserve ratio (CRR) by the central bank at its annual policy review on Tuesday, 20 April 2010. The Reserve Bank of India (RBI) raised repo rate, reverse repo rate and CRR by 25 basis points each. Analysts were expecting a 25 to 50 basis points hike in short term rates and the CRR. The RBI said it will continue to monitor macroeconomic conditions, particularly the price situation closely and take further action as warranted.

The hike in CRR is effective from 24 April 2010 while repo and reverse repo rate hikes are applicable immediately. After the hike, the CRR will increase to 6%, the repo rate to 5.25% and the reverse repo to 3.75%. Repo is the rate at which the central bank lends to banks and reverse repo is the rate at which the central bank absorbs excess cash from the banking system. CRR is the portion of deposits banks must set aside with the RBI.

The RBI said there is need to move in a calibrated manner in the direction of normalising its policy instruments given that the economic recovery is firmly in place. The latest CRR hike will suck out excess liquidity of Rs 12500 crore from the banking system. According the central bank, non-food credit growth is expected at 20% in the year ending March 2011 (FY 2011).

The central bank said it has to do a fine balancing act and ensure that while absorbing excess liquidity, the government borrowing programme is not hampered. Notwithstanding lower budgeted government borrowings for FY 2011, fresh issuance of securities will be 36.3% higher than in the previous year, the central bank said.

The RBI said the economy is recovering rapidly from a slowdown but inflationary pressures, which were triggered by supply side factors, are now developing into a wider inflationary process. The central bank said there in uncertainty about the shape and pace of ongoing global economic recovery.

The central bank expects India's economy to expand 8% in the year ending March 2011 (FY 2011) with an upward bias, assuming a normal monsoon this year and sustenance of good performance of the industrial and services sectors on the back of rising domestic and external demand. The quick rebound of the Indian economy in the year ended March 2010 (FY 2010) despite the failure of monsoon rainfall suggests that the Indian economy has become resilient, the RBI said. Growth in FY 2011 is expected to be more broad-based than in FY 2010.

The central bank has pegged headline inflation for end-March 2011 at 5.5%, lower than near double digits in the month of March 2010. According to RBI three major uncertainties cloud the outlook for inflation. First, the prospects of the monsoon in 2010-11 are not yet clear. Second, crude prices continue to be volatile. Third, there is evidence of demand side pressures building up.

The monsoon holds key. Good rains this year after last year's drought will boost farm output and rural incomes. But another monsoon failure will add to inflationary pressure which in turn may hamper the current strong economic rebound. The June-September monsoon season is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector.

Tokyo-based Research Institute for Global Change has predicted normal monsoon rains in India for the current year. Agriculture secretary P K Basu said in a media interview on Monday, 5 April 2010, that early signs indicate normal monsoon rains this year. The Indian Meteorological Department (IMD) issues a monsoon forecast, usually in the second half of April after considering weather observations in different parts of the world and extrapolating statistical data.

A weakening El Nino is a positive sign for the monsoon, Ajit Tyagi, director general at the India Meteorological Department, had said on 18 March 2010.

Coming back to stocks, the focus is on the fourth quarter corporate results and outlook provided by management for the current year. The combined net profit of a total of 91 companies rose 20.5% to Rs 6954 crore on 18.4% rise in net sales to Rs 44455 crore in the quarter ended March 2010 over the quarter ended March 2009.

Hindustan Zinc, United Spirits, Zee News, TVS Motor Company, Polaris Software, Infotech Enterprise, among others will announce their result for the January-March 2010 quater today.

The key benchmark indices registered small gains on Tuesday, 20 April 2010 snapping loses in the preceding five trading sessions, after the Reserve Bank of India (RBI) announced a small increase in policy rates at a monetary policy review and forecast inflation will slow. Firm global stocks supported the domestic bourses. The BSE 30-share Sensex rose 59.90 points or 0.34% to 17,460.58 on Tuesday.

As per provisional figures on NSE, foreign funds sold shares worth Rs 156.65 crore and domestic funds bought shares worth Rs 101.28 crore on Tuesday.