Market seen halting three-day rise, GDP data eyed

The market is likely to edge lower, ending a three-day winning streak, after Spain's credit rating downgrade and downbeat U.S. economic data reignited concerns about the global economic recovery. Trading in S&P CNX Nifty index futures on the Singapore stock exchange indicated that the Nifty could fall 6 points at the opening bell. The fourth quarter March 2010 GDP data to be released by 11:00 IST today, 31 May 2010 will be closely watched.

Auto, steel and cement shares may see action ahead of release of May 2010 sales figures due to be announced this week.

Asian stocks were mixed on Monday after Spain had its credit rating reduced and downbeat U.S. economic data. Key benchmark indices in Hong Kong, South Korea and Taiwan were by up between 0.04% to 2.47%. However, indices in China and Japan were down 0.61% and 0.21% respectively.

US markets declined on Friday, 28 May 2010 as a downgrade by Fitch of Spain's credit rating reignited worries about euro-zone debt issues. The Dow Jones industrial average fell 122.36 points, or 1.19%, to 10,136.61. The Standard & Poor's 500 Index shed 13.65 points, or 1.24%, to 1,089.41 and the Nasdaq Composite Index declined 20.64 points, or 0.91 percent, at 2,257.04.

Global ratings firm Fitch Ratings cut Spain's credit rating by one level to AA+ from AAA, saying the country's debt burden is likely to weigh on growth. Fitch cited an inflexible labor market and a restructuring of regional and local savings banks as hindrances to the pace of adjustment. Spain is struggling to lower debt amid a fiscal crisis that prompted the European Union to forge an almost $1 trillion loan package for its weakest economies.

Spain's downgrade follows similar cuts in ratings earlier this month of Greece and Portugal as those nations attempt to grapple with debt problems by implementing austerity measures.

In economic data, personal spending in the U.S. was unchanged last month as Americans used wages to rebuild savings, according to a Commerce Department report. The Institute for Supply Management-Chicago Inc. said its business barometer fell to 59.7 this month from 63.8 in April.

US markets remain closed on Monday, 31 May 2010, for the Memorial Day holiday.

As per government data released on 28 May 2010, food inflation rose 16.23% in the year through 15 May 2010, lower than previous week's annual rise of 16.49%. The fuel price inflation also slowed to 12.08% from the previous week's 12.33%. The primary articles index was up 15.90%, compared with the previous week's annual reading of 16.19%.

The Reserve Bank of India (RBI) on 26 May 2010, eased rules to boost liquidity at banks to avoid a cash crunch because of payments for corporate advance tax and license fees for third-generation mobile-phone spectrum. As per RBI's circular released on 26 May 2010, banks can borrow as much as 0.5% of their deposits from the central bank under the repurchase agreement till 2 July 2010. In addition, RBI said that as an ad hoc measure, banks can seek a waiver for any shortfall in maintenance of the prescribed 25% statutory liquidity ratio (SLR) while availing the temporary facility.

Besides, the central bank has decided to conduct two rounds of liquidity adjustment facility (LAF) operations till 2 July 2010. Through LAFs, that are conducted at least once a day, banks can avail of funds through the repo window or park surplus cash through the reverse repo route.

China, India, Brazil and Russia are powering ahead, the Organisation for Economic Cooperation and Development (OECD) said on 26 May 2010, revising upwards its growth outlook for all four largest emerging economies. The OECD revised India's GDP growth forecast for 2010 to 8.2% from its earlier estimate of 7.3%. It also raised the growth forecast for 2011 to 8.5% from its earlier estimate of 7.6%. The OECD also said that underlying inflationary pressures are likely to persist given the strong outlook for demand.

In its World Economic Outlook in April 2010, the International Monetary Fund (IMF) pegged India's GDP growth forecast at 8.75% in calendar 2010 and 8.5% in calendar 2011. IMF's optimism was based on expectations of strengthening of domestic demand as the labour market improves. Expectations of increase in investment on the back of strong corporate profitability, rising business confidence and favourable financing conditions, were other factors cited by IMF for its prediction of strong growth in India's economy.

Prime Minister Manmohan Singh late May 2010 said inflation is showing signs of moderating and the government expects to achieve a medium term target of 10% GDP growth annually. The Prime Minister said he expects inflation to moderate to 5-6% by December 2010. Singh expects 8.5% GDP growth in the year ending March 2011 (FY 2011).

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.

The India Meteorological Department (IMD) late April 2010 said rainfall is likely to be 98% of the long-term average. 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 fourth quarter corporate results season is almost over. The combined net profit of a total of 3,044 companies rose 14.90% to Rs 86631 crore on 25% rise in sales to Rs 889227 crore in the quarter ended March 2010 over the quarter ended March 2009.

Stocks extended gains for the third straight session on Friday, 28 May 2010, as world equities rose after China denied reports that it would pare euro-bond holdings. The BSE 30-share Sensex rose 196.66 points or 1.18% to 16,863.06 and the S&P CNX Nifty was up 63.45 points or 1.27% to 5,066.55.

From a recent low of 16,022.48 on Tuesday, 25 May 2010, the Sensex has jumped 840.58 points or 5.24% in the past three trading sessions.

As per the provisional data from the stock exchanges, foreign institutional investors (FIIs) bought stocks worth a net Rs 409.68 crore while domestic funds bought equities worth a net Rs 342.63 crore on 28 May 2010.