Market may extend gains on firm Asian stocks

The market may extend Thursday (8 July 2010)'s 1% gains on firm Asian stocks which rose on the back of encouraging economic data in the US. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicated that the Nifty could gain 14.50 points at the opening bell.



Most Asian stock markets rose on Friday after an encouraging US jobs report helped Wall Street extend gains. The key benchmark indices in Hong Kong, Indonesia, China, Taiwan, Singapore, Japan and South Korea rose by between 0.07% to 0.59%.

South Korea's central bank raised its key interest rate Friday from a record low amid prospects for faster growth in the country's economy. The Bank of Korea announced that it lifted the benchmark seven-day repurchase rate to 2.25% from 2%.

Wall Street rose for a third straight day on Thursday, 8 July 2010, as investors were encouraged to see jobless claims fall and a handful of large retailers report solid sales. The Dow Jones Industrial Average was up 120.71 points, or 1.20% at 10,138.99. The Standard & Poor's 500 Index was up 9.98 points or 0.94% at 1,070.25. The Nasdaq Composite Index was up 15.93 points, or 0.74% at 2,175.40.

Sales at stores open at least a year rose 3.1% in June 2010, according to company reports which was better than expected. Initial claims for state unemployment benefits dropped 21,000 to a seasonally adjusted 454,000 in the week ended 3 July 2010, the lowest level since early May, the Labor Department said.

The International Monetary Fund (IMF) on Thursday raised its world output forecast for 2010, citing solid growth in the first half, especially in Asia, but warned of significant downside risks flowing from Europe. The IMF revised its 2010 world gross domestic product forecast to 4.6%, up from a previous forecast in April of 4.2%. The 2011 GDP forecast was unchanged at 4.3%.

The IMF raised India's growth forecast for 2010 to 9.5%, stating that favourable financing conditions and robust corporate profits will accelerate economic expansion. The IMF expects India's economy to grow 8.5% in 2011.

The Dun & Bradstreet (D&B) Composite Business Optimism Index (BOI) for Q3 September 2010 rose to a two-year high of 150 from 132.1 in Q3 September 2009, recording an increase of almost 13.6% on a year-on-year (YoY) basis. The sustained improvement in the BOI, which is now at a two-year high, is reflective of the continuous strengthening of confidence amongst the corporates, D&B said.

Robust growth in industrial production, stabilising domestic consumption-demand, rapidly-growing investment demand coupled with increase in imports and exports seems to have supported growing business confidence, D&B said. Improvement in hiring intentions of the corporates, as reflected in a 10 quarter high resultant optimism for employees, is a positive development and augurs well for the future growth prospects of the economy, it said.

The latest data showed the food price index rose 12.63% in the year to 26 June 2010, while the fuel price index climbed 18.02%. The pace of increase in food prices slowed from the previous week's annual rise of 12.92% while fuel price inflation accelerated from last week's 12.90%. The primary articles index was up at 16.08% compared with the previous week's reading of 14.75%.

The next major trigger for the market is Q1 June 2010 results of India Inc, which will start trickling in from the second week of July 2010. Advance tax collections for the first quarter of the current financial year point to a strong growth in corporate sector profits. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year. Corporate advance tax for the first quarter stood at Rs 26,876 crore, against Rs 20,456 crore in the year-ago period, a rise of 31.4%, the fastest since 2005.

Auto firms are seen reporting strong Q1 results on the back of healthy volume growth. However, margins could be under pressure due to higher input costs. Improved lending growth will spur bottom line growth of banks whereas healthy order book will drive earnings of capital goods and engineering giants L&T and Bharat Heavy Electricals (Bhel). Higher sales realisation would boost boom line of metal firms.

As far as the IT sector is concerned, the focus is on whether the IT bellwether Infosys revises its annual guidance when it announces the first quarter results on 13 July 2010. The IT bellwether will issue guidance for the second quarter ending September 2010 at the time of announcing the first quarter results.

Investors are also closely watching the progress of the monsoon rains. Rains have revived after weak monsoon last month. Crop planting suffered last month as rainfall was 16% below normal, but rainfall deficit for the country as a whole has narrowed down to 10% for the period 1 June-8 July after heavy rains in the past few days. Rains were 2% above normal in the week ended 8 July 2010.

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 south-west monsoon usually covers the entire country by mid-July. 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.

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 is a part of the calibrated exit from the expansionary monetary policy.

Two-thirds of WPI inflation in May 2010 was contributed by non-food items, suggesting that inflation is now very much generalised and that demand-side pressures are evident, the central bank said in a statement. WPI inflation increased to 10.2% in May 2010, up from 9.6% in April 2010.

In its April 2010 policy review, the Reserve Bank projected real GDP growth for 2010-11 at 8% with an upside bias. More recent data suggest that the upside bias has largely materialized, thecentral bank said. The growth projection will be reviewed in the first quarter review on 27 July 2010, RBI said.

Analysts expect another 25 basis points rate hike by the central bank at its quarterly review on 27 July 2010.

The key benchmark indices surged on Thursday, 8 July 2010 as a hike in 2010 global growth forecast from the International Monetary Fund, firm global stocks and stock market regulator Securities & Exchange Board of India (Sebi)'s decision to reduce exposure margins for stock derivatives, boosted investor sentiments. Expectations of strong Q1 June 2010 corporate earnings also contributed to the rally. The BSE 30-share Sensex rose 180.70 points or 1.03% at 17,651.73..

As per provisional figures on NSE, foreign funds bought shares worth Rs 957.06 crore and domestic funds sold shares worth Rs 270.57 crore on Thursday.

Foreign funds have bought equities worth a net Rs 563.78 crore in the first few days this month. Foreign funds had pumped in Rs 7,713.97 crore in equities in June 2010

Domestic funds have sold shares worth a net Rs 251.76 crore in the first few days this month. They had sold equities worth a net Rs 4,777.05 crore in June 2010

The stock market regulator Securities & Exchange Board of India (Sebi) on has relaxed the exposure margin requirement for stock derivatives, based on the feedback received from market participants. After trading hours on Wednesday, 7 July 2010, Sebi issued a circular saying that the exposure margin would be higher of 5% or 1.5 times the standard deviation of the notional value of the gross open position in single stock futures and gross short open position in stock options in a particular underlying.

The revised exposure margin requirement would be effective from 15 July 2010. The exposure margin requirement was similar prior October 2008, after which Sebi increased the exposure margin requirement to higher of 10%, or 1.5 times the standard deviation, to promote market safety and safeguard investor interest.