Market may edge lower on weak global stocks; ICICI Bank eyed

Weak global global stocks may pull domestic bourses lower after Tuesday's (18 May 2010)'s mild gains. Trading in S&P CNX Nifty index futures on the Singapore stock exchange indicated that the Nifty could fall 78 points at the opening bell. Foreign funds are pressing sales.

As per the provisional data from the stock exchanges, foreign institutional investors (FIIs) sold shares worth Rs 439.70 crore and domestic funds bought shares worth Rs 326.61 crore on Tuesday. FIIs have sold shares worth a net Rs 6326.62 crore so far this month, till 18 May 2010, according to data from the stock exchanges. They had bought stocks worth a net Rs 2667.35 crore last month. Domestic funds have bought stocks worth a net Rs 2509.05 crore so far this month, till 18 May 2010

Asian stocks slid on Wednesday after concerns about the sustainablility of the global economic recovery drove US shares lower. The key benchmark indices in China, Hong Kong, Japan, Indonesia, South Korea, Singapore and Taiwan fell by between 1.24% to 1.94%.

US stocks sank on Tuesday, driven lower as the strengthening of financial regulation from Wall Street to Frankfurt crushed bank stocks, adding to worries about the sustainability of the global economic recovery. The Dow Jones Industrial Average fell 114.88 points or 1.08% to 10,510.95. The Standard & Poor's 500 Index lost 16.14 points, or 1.42% to 1,120.80. The Nasdaq Composite Index shed 36.97 points, or 1.57% to 2,317.26.

Adding to the woes, Germany added to the uncertain future for banks when it suddenly moved to ban naked short selling in the stocks of the country's 10 most important financial institutions. Naked short selling occurs when an investor sells shares without borrowing them first.

Meanwhile, European finance ministers approved new regulations aimed at reining in hedge funds, the latest sign of toughened oversight of powerful players in global financial markets. The European Union also plans to limit the amount of debt, or leverage, that foreign-based funds can use to amplify their trades and profits.

Back home, the fourth quarter corporate results announced so far have been fairly encouraging. The combined net profit of a total of 2,100 companies rose 24% to Rs 54,676 crore on 25.3% rise in sales to Rs 5,54,626 crore in the quarter ended March 2010 over the quarter ended March 2009.

Pidilite Industries, Rural Electrification Corporation, Amara Raja Batteries, Agro Tech Foods among others will announce their January-March 2010 quarter results today.

Meanwhile, Bank of Rajasthan has agreed a merger with ICICI Bank. The swap ratio for the merger is set at 25 shares of ICICI Bank for every 118 shares held in Bank of Rajasthan.

On the macro front, while the headline inflation declined to 9.59% in April 2010 from 9.9% rise in March 2010, the data for February 2010 was revised upwards to 10.06% from provisional figure of 9.89%, the latest government data showed. The RBI has forecast the headline inflation to ease to 5.5% at end-March 2011 on expectations of a normal monsoon.

The latest economic data showed industrial output rose lower than expected 13.5% in March 2010. The growth was also slower than February's 15.1% expansion. Manufacturing sector output rose 14.3% in March 2010. Industrial output rose 10.4% in the 2009/10 fiscal year, faster than the 2.6% growth clocked in the previous fiscal year.

The southwest monsoon has set over the Andaman and Nicobar islands and some parts of southeast Bay of Bengal. The weather IMD expects normal rainfall in the June-September monsoon season this year. Rainfall is likely to be 98% of the long-term average, the IMD said on 23 April 2010. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation. The south west monsoon 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. The quantum of rainfall in the crucial sowing month of July and distribution of rainfall during the monsoon season also holds key.

The RBI 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 RBI at its annual policy review on 20 April 2010 said it will continue to monitor macroeconomic conditions, particularly the price situation closely and take further action as warranted.

In its half-yearly World Economic Outlook, the International Monetary Fund (IMF) has pegged India's GDP growth at 8.75% in calendar 2010 and 8.5% in calendar 2011. According to the IMF, domestic demand in India will strengthen as the labour market improves, and investment is expected to be boosted by strong corporate profitability, rising business confidence and favourable financing conditions.

The key benchmark indices eked out small gains in choppy trading session on Tuesday, 18 May 2010, tracking higher European stocks and gains in US index futures. The BSE 30-share Sensex rose 40.20 points or 0.24% to 16,875.76 on Tuesday.