Market to extend gains

The market may extend gains for the third straight day on modest gains in Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicated that the Nifty could gain 16 points at the opening bell. Meanwhile, government will announce the industrial production data for the month of May 2010 today, 12 July 2010.



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.

Asian stocks kicked off a new week on Monday with modest gains, after Wall Street closed out its best week in a year on Friday, 9 July 2010. Japan's stocks wobbled after the government lost an upper house election at the weekend. The key benchmark indices in Hong Kong, Indonesia, China, Taiwan, Singapore, Japan and South Korea rose by between 0.07% to 0.41%.

Wall Street closed out its best week in a year on Friday 9 July 2010, snapping back from a long stretch of selling, as investors looked ahead to what many expect will be a solid earnings season. The Dow Jones Industrial Average was up 59.04 points or 0.58% at 10,198.03. The Standard & Poor's 500 Index was up 7.70 points, or 0.72% at 1,077.95. The Nasdaq Composite Index was up 21.05 points, or 0.97% at 2,196.45.

The earnings season begins with Alcoa Inc after the closing bell on Monday, 12 July 2010. In economic news, US wholesale sales fell unexpectedly in May, lifting inventories to their highest level in 11 months, a government report showed.

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 major near term trigger for the market is Q1 June 2010 results of India Inc, which starts with results of Infosys on Tuesday, 13 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.

Meanwhile, the government will announce the inflation data for the month of June 2010 on Wednesday, 14 July 2010.

Coming back to stocks, 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 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.

The key benchmark indices surged for the second straight day on Friday, 9 July 2010 as expectations of strong Q1 June 2010 results, a recent upward revision in India's GDP growth forecast by the International Monetary Fund and the stock market regulator Securities & Exchange Board of India (Sebi)'s recent decision to cut exposure margins on stock derivatives, boosted sentiments. The BSE 30-share Sensex jumped 181.81 points or 1.03% at 17,833.54 on Friday.

AS per provisional figures on NSE, foreign funds bought shares worth Rs 1104.08 crore and domestic funds bought shares worth Rs 38.72 crore on Friday.

Foreign funds have bought equities worth a net Rs 1667.86 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 213.03 crore in the first few days this month. They had sold equities worth a net Rs 4,777.05 crore in June 2010