Market may edge higher as most European banks pass stress tests

Gains in Asian stocks may lift the domestic bourses at the onset of the trading session. Volatility may rise as traders rollover positions in derivatives segment from July 2010 series to the August 2010 series ahead of the expiry of the near-month July 2010 contracts on Thursday, 29 July 2010. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicated that the Nifty could rise 12.50 points at the opening bell. Car major Maruti Suzuki will be under selling pressure on poor Q1 June 2010 results.



Caution is likely to prevail ahead of the Reserve Bank of India's quarterly monetary policy review on Tuesday 27, July 2010. Analysts expect another 25 basis points rate hike aimed at anchoring inflation expectations. The Reserve Bank of India (RBI) on 2 July 2010, hiked the repo rate by 25 basis points to 5.5% from 5.25%, with immediate effect. It also hiked the reverse repo rate, at which it absorbs excess cash from the banking system, by an equal 25 basis points to 4% from 3.75%. The central bank said the latest rate hike was a part of the calibrated exit from the expansionary monetary policy.

The Prime Minister's Economic Advisory Panel on Friday, 23 July 2010, forecast 8.5% growth in GDP in the fiscal year that ends in March 2011 (FY 2011). It expects 4.5% growth in farm output in FY 2011. The headline inflation will be at 6.5% by March 2011, the panel said in a report. The report also said net capital inflows would be $73 billion.

Prime Minister's Economic Advisory Council C. Rangarajan said fertiliser subsidy bill must come down and diesel prices could be freed once inflation begins to come down.

The revival of the monsoon rains this month augurs well for the Indian economy which is driven by strong domestic demand. The annual monsoon rains were 9% below normal during the period from 1 June 2010 to 25 July 2010. Rains were 17% below normal in the week to 21 July 2010, improving after a 24% deficit in the previous week. 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 weather office expects this year's monsoon rains to be at 102% of the long-period average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

Maruti Suzuki will be under selling pressure as net profit fell 20.2% to Rs 465.40 crore on 27% growth in net sales to Rs 8050.70 crore in Q1 June 2010 over Q1 June 2009. Maruti said the fall in net profit was due to higher commodity prices, increase in royalty and lower 'other income'. The company said income from exports to Europe declined due to weakening of the euro.

The key first quarter results due today are NTPC, Sterlite Industries, Tech Mahindra and Union Bank of India.

Asian stocks rose on Monday, 26 July 2010, as most European banks passed stress tests, boosting optimism over the health of the global economy. The key benchmark indices in Hong Kong, Japan, South Korea, and Taiwan were up by between 0.28% to 1.2%. But, the key benchmark indices in China, Indonesia and Singapore were down by between 0.02% to 0.3%.

European regulators found that seven banks need to raise a combined 3.5 billion euros ($4.5 billion) of capital. Germany's Hypo Real Estate Holding AG, Agricultural Bank of Greece SA and five Spanish savings banks didn't have adequate reserves to maintain a Tier 1 capital ratio of at least 6% in the event of a recession and sovereign-debt crisis, lenders and regulators said on Friday, 23 July 2010.