Market may edge higher on positive global cues

The market is likely to open higher tracking gains in Asian stocks. Trading in S&P CNX Nifty index futures on the Singapore stock exchange indicated that the Nifty could rise 20.50 points at the opening bell.

Reliance Industries may see action after the Bombay Stock Exchange (BSE) said it was investigating trading in the stock after it plunged 20% in a few seconds before recovering most of its losses in intra-day trade on 1 June 2010.

Japanese stocks led a recovery in Asian stocks after resignation of Japan's prime minister Yukio Hatoyama prompted a drop in the yen, boosting the earnings outlook for Japanese exporters. The key benchmark indices in Hong Kong, Indonesia, Singapore, Japan and Taiwan were up by between 0.03% to 1.27%. However, China's Shanghai Composite declined 0.60%.

US markets edged lower on Tuesday, 1 June 2010, in choppy trading prompted by fears of new banking problems in Europe and of a slowdown in Chinese growth. The Dow Jones industrial average fell 112.61 points, or 1.11%, at 10,024.02. The Standard & Poor's 500 Index dropped 18.70 points, or 1.72%, at 1,070.71 and the Nasdaq Composite index lost 34.71 points, or 1.54%, at 2,222.33.

In economic data, the ISM reported its manufacturing index dropped to 59.7 in May 2010 from 60.4 in April 2010, but remained in growth mode for a 10th straight month and beat expectations. A separate report showed construction activity rose the most in nearly a decade.

Global ratings firm Fitch Ratings on 28 May 2010 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 of Greece and Portugal recently as those nations attempt to grapple with debt problems by implementing austerity measures.

Back home, India's exports rose 36% to $16.9 billion in April 2010 over April 2009, the latest government data released on 1 June 2010 showed. Exports rose for the sixth consecutive month in May 2010 after registering a slide in 13 straight months. Imports rose 43% to $27.3 billion in April 2010 over April 2009.

HSBC Markit Purchasing Managers' Index (PMI), based on a survey of 500 Indian firms, surged to a 27-month high of 59 in May 2010 from 57.2 in April 2010, bolstered by steady growth in output, new orders and employment. The rate of growth had slowed in March 2010 and April 2010.

Meanwhile, a revenue bounty for the government from the sale of telecom spectrum would help bring down fiscal deficit in the current financial year.

India's economy grew at 8.6% in the March 2010 quarter driven by robust manufacturing sector on the back of government and consumer spending, data released by the government on Monday, 31 May 2010, showed. The growth was significantly higher than the revised 6.5% expansion in Q3 December 2009 and a 5.8% growth in Q4 March 2009. The manufacturing sector grew 16.3%, farm output rose 0.7%, mining sector expanded 14% and services increased by 8.4% in January-March 2010 quarter from a year earlier.

For the full year to March 2010, the economy expanded 7.4%, above a government forecast of 7.2%. Economic growth had slowed down to 6.7% in year ended March 2009.

The advance of the south west monsoon rains has been temporarily halted by a cyclonic depression in the Arabian Sea. Monsoon has covered Kerala and Tamil Nadu, but not moved beyond due to a cyclonic depression, according to agency reports. The weather office expects monsoon rains to advance to Karnataka later this weekend, by when the cyclone would weaken. The June-September monsoon rains hit Kerala on 31 May 2010, a day ahead of schedule. The south-west monsoon usually covers the entire country by mid-July.

The weather office 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.

Prime Minister Manmohan Singh in 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 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.

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.

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.

The combined net profit of a total of 3,416 companies rose 14.2% to Rs 87,238 crore on 24.7% rise in sales to Rs 9,25,841 crore in the quarter ended March 2010 over the quarter ended March 2009.

The key benchmark indices suffered a severe setback in the second half of the trading session on Tuesday, 1 June 2010, as slowdown in Chinese manufacturing growth pulled world stocks sharply lower. The BSE 30-share Sensex fell 372.60 points or 2.2% to 16,572.03 and the S&P CNX Nifty declined 116.10 points or 2.28% to 4,970.20.

From a recent low of 16,022.48 on 25 May 2010, the BSE Sensex had gained 922.15 points or 5.75% in four trading sessions to 16,944.63 on 31 May 2010.

As per the provisional data from the stock exchanges, foreign institutional investors (FIIs) sold stocks worth a net Rs 526.49 crore while domestic funds bought equities worth a net Rs 210.62 crore on 1 June 2010.