Market may surge on strong global cues; food inflation data eyed

The market may extend Wednesday (2 June 2010)'s 1% gains on strong global cues. Trading in S&P CNX Nifty index futures on the Singapore stock exchange indicated that the Nifty could rise 53 points at the opening bell. The government will unveil data on some wholesale price indices for the year through 22 May 2010 viz. the food price index, the primary articles index and the fuel price index at about 12:00 IST today.

In a stock specific news, India's largest power producer by sales NTPC, is reportedly set to acquire controlling interest in a 720-million-tonne coal field in Australia in a deal valued at $1-1.5 billion, which will enable it to fire about 3,500 megawatts (mw) of power capacity.

Asian stock markets chalked up healthy gains on Thursday, following a rally on Wall Street which saw the Dow surge more than 200 points on Wednesday. The key benchmark indices in Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan rose by between 1.31% to 2.63%. But, China's Shanghai Composite fell 0.11%.

US stocks rallied on Wednesday as investors rushed back into beaten-down shares, led by energy, which bore the brunt of the sell-off a day earlier. The Dow Jones Industrial Average gained 225.52 points, or 2.25% to 10,249.54. The Standard & Poor's 500 Index rose 27.67 points, or 2.58% to 1,098.38. The Nasdaq Composite Index climbed 58.74 points or 2.64% to 2,281.07.

Investors also were encouraged by data showing pending sales of previously owned homes increased to a six-month high in April 2010.

Back home, Prime Minister Manmohan Singh highlighted 12 major areas of his intended priority on Tuesday, 1 June 2010, while releasing the first anniversary report of the UPA-II government at a function in New Delhi. These include relations with neighbours, economic resurgence, internal security, education, health, child rights, food security, empowerment of women, weaker sections and minorities and rural renewal. He added that the economy is expected to grow at 8.5% in the current financial year ending March 2011.

The Prime Minister identified price rise as one of the major problems faced by his government but assured to monitor the situation and take necessary corrective measures to rein in inflation. Singh said India must withdraw fiscal stimulus to boost economic growth and reduce deficit in a calibrated manner.

The Reserve Bank of India on Tuesday said inflation remained higher than its comfort level, signalling that the bank could raise interest rates further.

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.

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 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.

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

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.

Last month, Australia's weather bureau said the El Nino weather pattern was over. El Nino is caused by an abnormal warming of the eastern Pacific Ocean and can play havoc with weather patterns across the Asia-Pacific region.

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.

On the corporate front, the combined net profit of a total of 3,454 companies rose 14.20% to Rs 87,247 crore on 24.70% rise in sales to Rs 9,26,193 crore in the quarter ended March 2010 over the quarter ended March 2009.

Healthy auto and cement sales in May 2010 and buzz of strategic stake sale in Reliance Communications (RCom) helped domestic bourses shrug off weak global stocks on Wednesday, 2 June 2010. The BSE 30-share Sensex rose 169.81 points or 1.02% to 16,741.84 on Wednesday.

As per provisional figures on NSE, foreign funds sold shares worth Rs 166.50 crore and domestic funds bought shares worth Rs 165.16 crore on Wednesday.

Foreign funds sold shares worth a net Rs 692.99 crore in the first two trading sessions this month, as per data from the stock exchanges. Domestic funds have bought stocks worth a net Rs 375.78 crore in the first two days this month.