Market seen snapping seven-day rally on mixed global cues

The market is likely to edge lower as profit booking may emerge after a sharp seven-day rally. However, steady inflow from foreign funds may cap sharp decline. Trading in S&P CNX Nifty index futures on the Singapore stock exchange indicated that the Nifty could fall 13 points at the opening bell.



In stock-specific action, shares of Reliance Industries (RIL) may hog limelight ahead of the company's annual general meeting today, 18 June 2010. ITC may see action ahead of a board meet today to consider issue of bonus shares.

Asian markets were trading mixed as gold prices near record high boosted producers of the metal while a weaker dollar dragged down Japanese car makers. The key benchmark indices in Indonesia, China, Singapore, Hong Kong were up by 0.11% to 0.91%. Key benchmark indices in Japan, South Korea, and Taiwan were down 0.06% to 0.12%.

US markets staged a late comeback on Thursday, to end with modest gains despite a much worse-than-expected reading on manufacturing activity in the Philadelphia area and a pickup in jobless claims. The Dow Jones Industrial Average rose 24.71 points, or 0.2%, to 10434.17. The S&P 500 added 1.43 points or 0.13% to 1,116.04 and the Nasdaq Composite rose 1.23 points or 0.05% to 2,307.16.

A release by Department of Labor on Thursday showed number of Americans filing first- time claims for unemployment benefits rose 12,000 to 472,000 in the week ending 12 June 2010. The Federal Reserve Bank of Philadelphia said that its manufacturing index dropped to 8 in June 2010 from 21.4 in the prior month.

Back home, the government after market hours on Tuesday, 15 June 2010 proposed to impose capital gains tax on all stock market transactions by Indians and overseas funds as a part of changes in tax laws. As per the second draft of the direct tax code (DTC) released on Tuesday, the securities transaction tax (STT) will stay and rates will be calibrated. In its first draft DTC unveiled last year, the government had proposed to scrap the securities transaction tax.

The DTC has proposed taxing gains from investments in the stock market and also equity-linked mutual fund units at the applicable rate of taxation. The DTC has also proposed some taxes on income of foreign funds, treating all incomes from their investments in the stock market in India as capital gains.

The revised discussion paper on DTC has proposed computation of minimum alternate tax (MAT) on book profits basis. The earlier code had proposed MAT on gross assets. The revised discussion paper also makes it clear that profit-linked deductions of units already operating in special economic zones would be protected for the unexpired period. The tax proposals, which will replace the existing direct tax laws introduced decades ago, are expected to come into force in the next financial year starting 1 April 2011.

Meanwhile, many Indian firms have reportedly paid higher advance tax in Q1 June 2010. Higher advance tax payment normally indicates higher profits for the period under review. Reliance Industries (RIL) has paid Rs 653 crore, an increase of 108%, while HPCL paid Rs 61 crore, a 307% increase. Bajaj Auto paid Rs 110 crore against Rs 50 crore last year.

Infosys Technologies, the country's second-largest software company, reported an advance tax payment of Rs 275 crore, compared to Rs 230 crore in the previous year. TCS paid Rs 128 crore in advance taxes in Q1 June 2010, up 142% from Rs 53 crore it paid in the April-June period last fiscal.

The country's top consumer goods company Hindustan Unilever paid Rs 75 crore, the same as last the last fiscal year. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year

The country's top pharmaceutical companies have also paid higher taxes, with GlaxoSmithkline Pharma paying Rs 42 crore against Rs 39 crore in the year-earlier period and Ranbaxy's payments rising to Rs 17.5 crore from Rs 15 crore.

The banking sector was a mixed bag during the quarter. The country's largest bank State Bank of India (SBI) paid Rs 860 crore against the Rs 1170 crore it paid a year before. Union Bank of India's advance tax payments rose to Rs 168 crore from Rs 104 crore, while ICICI Bank paid Rs 350 crore, the same as it paid in the last fiscal.

Housing finance major HDFC has paid advance tax of Rs 215 crore in Q1 June 2010 verses Rs 175 crore in Q1 June 2009. Private sector lender HDFC Bank has paid advance tax of Rs 315 crore in Q1 June 2010 versus Rs 250 crore in Q1 June 2009.

Bharat Heavy Electricals (Bhel) has paid Rs 400 crore verses Rs 320 crore, ITC has paid Rs 230 crore versus Rs 200 crore. ONGC has paid Rs 1093 crore, up 24.20% from Rs 880 crore paid during the corresponding period a year ago. L&T's advance tax has risen 18.2% to Rs 130 crore.

Mahindra and Mahindra paid Rs 63 crore, up 270.5%, and Tata Motors paid Rs 65 crore, more than double last year's outgo. Steel Authority of India (SAIL) paid Rs 362 crore against Rs 344 crore a year before, while Gas Authority of India paid Rs 280 crore against Rs 250 crore. Ambuja Cement's advance tax payment dipped marginally to Rs 65 crore from Rs 70 crore

Global rating agency Fitch, early this week, raised India's local currency rating outlook to stable from negative as the rating agency forecast a decline in government debt to GDP ratio to 80% by March 2011 from 83% at the end of March 2010. It also upgraded India's growth forecast to 8.5% in the year to March 2011 from earlier forecast of 7% growth.

The Reserve Bank of India (RBI) is likely to raise interest rates further after government data released on 14 June 2010 showed a surge in headline inflation. Inflation based on the wholesale price index (WPI) rose an annual 10.16% in May 2010, faster than 9.59% rise in April 2010, government data showed on Monday. Meanwhile, inflation for March 2010 was revised upwards to 11.04% from a provisional rise of 9.9%.

Industrial output rose much faster than expected at 17.6% in April 2010 from a year earlier on strong consumer demand and government spending. March's annual growth rate was revised upwards to 13.9% from 13.5%. Manufacturing output rose 19.4% in April 2010. The industrial output rose 10.4% in the 2009/10 fiscal year (April-March), faster than the 2.6% clocked in the previous fiscal year.

Investors will also keep a close eye on the progress of the monsoon rains. Annual monsoon rains in the week to 16 June 2010 were 8% below normal, the India Meteorological Department (IMD) said on 17 June 2010. As per IMD update on 17 June 2010, southwest monsoon has further advanced into some more parts of east Madhya Pradesh, Chhattisgarh and Orissa.

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. Monsoon rains had 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 key benchmark indices extended gains for the seventh day in a row on Thursday to settle at one and a half month highs after a largely successful Spanish bond auction eased worries about the euro-zone crisis. The BSE 30-share Sensex jumped 153.82 points or 0.88% to 17,616.69, its highest closing since 27 April 2010. The S&P CNX Nifty was up 41.50 points or 0.79% to 5,274.85, its highest closing since 30 April 2010.

As per provisional data from the stock exchanges, foreign funds bought stocks worth a net Rs 462.60 crore while domestic funds offloaded shares worth a net Rs 363.63 crore on 17 June 2010.

Foreign funds have bought equities worth a net Rs 3250.05 crore in six trading sessions from 10 June 2010 to 17 June 2010, as per data from the stock exchanges. The net inflow totaled Rs 2161.35 crore in June 2010 so far (till 17 June 2010) compared to a massive outflow of Rs 12071.13 crore in May 2010.

Domestic funds, which had absorbed some of the heavy selling from foreign funds last month, offloaded stocks worth a net Rs 951.90 crore this month so far. Domestic funds had mopped up equities worth a net Rs 6361.17 crore in May 2010.