Stress test results of European banks, RBI's rate hike to set the tone

The results of the stress test of European banks due late on Friday, 23 July 2010, will set the tone for global equity markets early next week. Closer home, investors will watch for any surprises in central bank's monetary policy review on Tuesday, 27 July 2010. The market has already discounted a 25 basis points rate hike in key short term rates by the Reserve Bank of India.


Volatility may rise as traders roll over positions in the derivatives segment from the near-month July 2010 contracts to August 2010 contracts ahead of the expiry of the near-month July 2010 derivatives contracts on Thursday, 29 July 2010.

On the global front, European Union regulators are examining the strength of 91 banks to determine if they can survive potential losses from both a recession and a decline in the value of their government- bond holdings. The tests are being used to reassure investors about the health of financial institutions from Germany's WestLB AG and Bayerische Landesbank to Spanish savings banks as the debt crisis pummels the bonds of Greece, Spain and Portugal.

Back home, among the key corporate results, Maruti Suzuki India will announce its Q1 result on Saturday, 24 July 2010. Sterlite Industries and NTPC will announce Q1 results on Monday, 26 July 2010. Larsen & Toubro, Reliance Industries and Hindustan Unilever's Q1 results are due on Tuesday 27 July 210. DLF, Mahindra & Mahindra and Jindal Steel & Power's Q1 results are due on 28 July 2010. Hero Honda Motors and ONGC will be announcing Q1 result on Thursday, 28 July 2010.

The first quarter results announced by the companies so far have been decent. The combined net profit of a total of 303 companies rose 25.5% to Rs 20510 crore on 17.7% rise in sales to Rs 133828 crore in Q1 June 2010 over Q1 June 2009.

Investors are closely monitoring the progress of the monsoon rains. The annual monsoon rains were 17% below normal in the week to 21 July 2010, improving after a 24% deficit in the previous week, the India Meteorological Department said on Thursday, 22 July 2010. The seasonal monsoon rains during 1 June to 22 July 2010 were 12% below normal, the weather office added.

Southwest monsoon was vigorous over Sub-Himalayan West Bengal & Sikkim and active over Bihar, West Uttar Pradesh, Uttarakhand, Himachal Pradesh, Punjab, Konkan & Goa, Vidarbha, Telangana, Coastal & South Interior Karnataka and Kerala during past 24 hours, the weather office said in its daily report on Thursday 22 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 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.

Investors poured money into equity funds focused on India and China in the week ended 21 July 2010 as concern about economic growth spurred withdrawals from developed-market stocks, global fund tracker EPFR Global said. India funds received a net $187 million, the most in 51 weeks, while China money managers took in $138 million, EPFR said.

Foreign funds have bought Indian equities worth a net Rs 6053.03 crore this month so far, till 22 July 2010, as per data from the stock exchanges. Foreign funds had pumped in Rs 7713.97 crore in equities in June 2010.

Domestic funds have sold shares worth a net Rs 3539.31 crore this month so far, till 22 July 2010. They had sold equities worth a net Rs 4777.05 crore in June 2010.