Market may extend gains on firm Asian stocks; inflation data eyed

The market may extend gains for fourth straight day on firm Asian stocks, which surged after strong earnings reports from US companies. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicated that the Nifty could gain 39 points at the opening bell. The market sentiment remains firm due to stepping up of buying by foreign funds over the past few days. On the macro front, the government will announce the data on inflation based on wholesale prices for the month of June 2010 today, 14 July 2010.



In stock specific news, India's largest dedicated housing finance firm by revenue, HDFC, will announce its Q1 result today.

The major near term trigger for the market is Q1 June 2010 results of India Inc. 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.

IT bellwether kickstarted the result season on Tuesday,13 July 2010, reporting lower-than-expected Q1 result.

Asia's stock markets climbed on Wednesday, 14 July 2010, as better-than-expected results from US chip maker Intel injected life into Asian technology shares. The key benchmark indices in China, Indonesia, Singapore, Japan, Hong Kong, Taiwan and South Korea rose by between 0.67% to 2.83%.

Singapore's economy expanded at a 26% annual pace in the second quarter after a record surge the previous three months, spurring the nation's currency and adding to evidence of Asia's resilience to the European crisis. Singapore's growth for the first quarter was revised to 45.9%, the fastest since records began in 1975, the trade ministry said today.

US Stocks rallied for a sixth straight day on Tuesday, 13 July 2010, after Alcoa's stronger than expected quarterly results announced after market hours on Monday, 13 July 2010, heartened investors that had fled to the sidelines on jitters about the sustainability of the economic recovery. Intel Corp, too, reported results that beat expectations after trading hours on Tuesday, 14 July 2010.

The Dow Jones Industrial Average gained 146.75 points, or 1.44% to 10,363.02. The Standard & Poor's 500 Index rose 16.59 points, or 1.54% to 1,095.34. The Nasdaq Composite Index jumped 43.67 points or 1.99% to 2,242.03.

Closer home, industrial output in May 2010 rose at a slower-than-expected 11.5% from a year earlier, data showed on Monday, 12 July 2010. Manufacturing output rose an annual 12.3%, the statistics office said. Mining output was up 8.7% and power generation rose 6.4%. Production of capital goods rose 34.3% year-on-year after an annual rise of 72.8% in April 2010, while consumer durables output grew 23.7%, down from a 37% rise in the previous month April's industrial production growth was revised downwards to 16.5% from 17.6%.

The International Monetary Fund (IMF) on Thursday, 8 July 2010 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 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, the central bank on 2 July 2010. The growth projection will be reviewed in the first quarter review on 27 July 2010, RBI said.

Analysts expect a further 25 basis points hike in short term interest rates by the central bank at the policy review later this month.

Meanwhile, the revival of monsoon rains helped accelerate the planting of rice, oilseeds and cotton last week. The area under rice cultivation jumped 56% to 7.2 million hectares on 9 July 2010 while cotton planting rose by half, during the week, compared with the previous week, as monsoon rains were 2% above normal, ending a two-week dry spell since 18 June 2010. Rainfall was 16% below average in June 2010. The shortfall narrowed to 10% last week.

While total rainfall since 1 June 2010 is now 13% below normal, key crop areas such as rice-growing Punjab and Haryana and soybean-growing Madhya Pradesh have received adequate rains.

The Southwest monsoon was active over West Bengal, Bihar, West Uttar Pradesh, Haryana, Chandigarh & Delhi, Punjab and Vidarbha during past 24 hours, the India Meterological Department (IMD) said in its daily update on Tuesday, 13 July 2010. The IMD sees widespread rain/thundershowers in West Bengal & Sikkim, Bihar, Jharkhand and East Uttar Pradesh during next 48 hours and decrease thereafter. It expects fairly widespread rain/thundershowers in northeastern states, Lakshadweep, west coast, Andaman & Nicobar Islands and Orissa. Scattered rain/thundershowers would occur over Chhattisgarh, Madhya Pradesh and Vidarbha during next 24 hours and increase thereafter, the IMD said.

Scattered rain/thundershowers would occur over Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Punjab, Haryana, Chandigarh, Delhi and West Uttar Pradesh during next 24 hours and decrease thereafter, the weather office said on Tuesday. Scattered rain/thundershowers would occur over North Andhra Pradesh, Madhya Maharashtra and interior Karnataka. Over the next few days, fairly widespread rain/thundershowers would occur over central India and west coast, the IMD said.

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.

Revival of monsoon rains and stepping up of buying by foreign funds helped the key benchmark indices attain their highest closing level in 29-months on Tuesday, 13 July 2010. Rally in European stocks and US index futures supported the domestic bourses as the market extended gains for the fourth day. The BSE 30-share Sensex rose 48.70 points or 0.27% at 17,985.90, its highest closing level since 19 February 2008.

As per provisional figures on NSE, foreign funds bought shares worth Rs 784.68 crore and domestic funds sold shares worth Rs 650.96 crore on Tuesday.

Inflows into Indian stock funds rose to an 11-week high in the week ended 7 July 2010 as global investors responded to the arrival of monsoon rains, according global fund tracker EPFR Global. Global emerging market stock funds attracted $518 million and those investing in Asia (ex-Japan) drew $124 million, with Taiwan funds enjoying their second-best week this year, EPFR said.

Foreign funds have bought equities worth a net Rs 3454.29 crore this month so far, till 13 July 2010. Foreign funds had pumped in Rs 7713.97 crore in equities in June 2010

Domestic funds have sold shares worth a net Rs 1157.03 crore this month so far, till 13 July 2010. They had sold equities worth a net Rs 4777.05 crore in June 2010.

Meanwhile, the stock market regulator Securities & Exchange Board of India (Sebi) has relaxed the exposure margin requirement for stock derivatives, based on the feedback received from market participants. After trading hours on 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.