Market may edge higher on firm Asian stocks

The market may edge higher, recovering from Friday's (27 August 2010) broad-based decline, tracking gains in Asian stocks, which rose on rally in US stocks on Friday. Trading of the S&P CNX Nifty futures on the Singapore stock exchange indicated that the Nifty could rise 57.50 points at the opening bell.



The government is likely to table the much-awaited Direct Taxes Code (DTC) bill in the Lok Sabha today, 30 August 2010, to pave the way for the introduction of a new framework and structure for direct taxes including personal income tax and corporate tax. The Cabinet had approved the DTC Bill that proposes a restructuring of income tax slabs -- a move that would leave more money in the hands of people. DTC Bill, once legislated, will replace the archaic Income Tax (I-T) Act by rationalising tax slabs for both corporations and individual I-T payers.

The Bill has proposed to fix corporate income tax rate at 30 per cent inclusive of surcharges and cesses -- down from the current 33 per cent. It has also proposed a Minimum Alternate Tax (MAT) of 20 per cent, instead of the present 18 per cent, on book profits of companies.

The Bill is also likely to propose to continue with exempt-exempt-exempt (EEE) method of taxation on investments up to R3 lakh. At present, all three stages of savings -- income, deposit and withdrawal -- are exempt from tax (EEE). The cap of R1.5 lakh per annum on deduction on payment of interest on the home loan is likely to continue.

After its introduction in Parliament, the Bill will be examined by a Standing Committee and based on its recommendations the government would consider further amendments.

In stock specific news, Sahaviriya Steel Industries Public Co. (SSI), Thailand's largest steel producer, plans to buy Tata Steel's Cast Products unit in the UK for about $500 million as it seeks to turn around the unprofitable business. Tata Steel's UK unit Corus signed a memorandum of understanding with SSI and aims to complete the terms of a transaction as soon as possible, Corus said in a statement. The proposed sale includes coke ovens, power generation facilities and the Redcar Blast Furnace.

Hero Honda Motors stock turns ex dividend today for the payment of final dividend of Rs 30 per share for the year ended March 2010.

Asian stocks rose the most in four weeks on Monday as the Bank of Japan met to discuss measures to support economic growth and Federal Reserve Chairman Ben Bernanke pledged similar policies. The Nikkei 225 stock average surged 3.05% on hopes that the Bank of Japan would ease monetary policy in response to a recent sharp rise of the yen. At the extraordinary meeting, the central bank will discuss monetary control matters based on recent economic and financial developments, it said in a statement.

In other Asian stocks, the key benchmark indices, China, Hong Kong, Singapore, Indonesia, South Korea and Taiwan were up by between 0.7% to 1.59%.

US stocks rebounded to post their best gains in nearly four weeks on Friday, 27 August 2010, overcoming initial skittishness brought on by a revenue warning from Intel and dour comments from Federal Reserve Chairman Ben Bernanke. The Dow Jones Industrial Average gained 164.84 points, or 1.65% to 10,150.65. The Standard & Poor's 500 Index jumped 17.37 points, or 1.66% to 1,064.59. The Nasdaq Composite Index climbed 34.94 points, or 1.65% to 2,153.63.

The stock market started on a positive note after US economic growth was revised down in the second quarter, but still the reading was better than expected. Strong buying interest at a key technical level and short-covering sparked the market's comeback, and the tone improved as investors took a more positive view of Bernanke's comments about the economy and the Fed's readiness to act.

Bernanke told central bankers at a conference in Jackson Hole, Wyoming the recovery has weakened more than expected but the US central bank was ready to take further steps if needed to spur the recovery. The Fed chairman downplayed concerns that the economy might slip back into recession, reassuring investors spooked by his recent comments the US economy faced "unusual uncertainty."

Back home, the infrastructure output grew 3.9% in July, marginally higher than annual growth of 3.6% in June, as crude oil and refinery output grew in double-digits, government data showed on Friday. In July, the electricity sector grew 3.8%, the same as the year-ago period, but cement contracted by 0.2% from 13.8% growth and finished steel shrank by 0.9% from 4% growth a year ago. Growth in coal slowed to 4.5% in July compared with 10.5% a year ago. Cement and finished steel output contracted because of heavy rains in mining areas and a slowdown in construction during the monsoon. The infrastructure sector accounts for 26.7% of industrial output. The industrial output rose 7.1% in June from a year earlier, its slowest pace in 13 months.

The food inflation declined further in the middle of this month even as prices of fuels remained steady, the latest data showed. Inflation in the Food Articles group stood at 10.05% for the week ended 14 August 2010, versus 10.35% in the previous week, the Commerce & Industry Ministry said. Inflation in the Primary Articles group stood at 14.75% in the week under review as against 14.85% in the week ended 7 August 2010. Inflation in the Fuel & Power group was unchanged at 12.57%. But, inflation in the Non-food Articles group rose to 22.20% from 21.70% in the preceding week.

The growth is getting more broad-based and inflationary pressures are easing and the central bank will calibrate policy action to the evolving growth-inflation dynamics, the Reserve Bank of India (RBI) governor D Subbarao said on Friday. Going forward, the Reserve Bank will calibrate policy action to the evolving growth-inflation dynamics, Subbarao said in a speech at a conference in Bangalore. Given the uncertainty in the world and the lags in monetary transmission, it is not possible to offer more precise guidance, he added.

The RBI is expected to raise key rates by 25 basis points at its 16 September 2010 policy review, after raising its lending rate by 100 basis points since March.

The good news is that the kharif sowing has been remarkably good this year. Nearly 95 million hectares, constituting over 90 per cent of the normal kharif area, has been brought under crop cover by 26 August 2010. This is nearly eight million hectares more than last year's coverage. Almost all crops have gained in area, compared to last year, with paddy, coarse cereals and pulses accounting for two million hectares of additional acreage, each. The crop condition is generally satisfactory, as per reports. Diseases and pests have remained largely below the threshold mark in most places.

Surge in rainfall in late August has resulted in rapid rise in total water stock of 81 major reservoirs. It stood at 82.793 billion cubic metres on 26 August 2010, which is 31% above the last year's corresponding level and just two per cent below the long-period average. However, there is still some worry about water storage in 36 dams which have hydel power units attached to them. The water level in 23 of these is still below normal.

The India Meteorological Department (IMD), in its monsoon forecast update issued on 27 August 2010, has predicted 15 per cent above-normal rainfall in September. This will be a parting gift as the monsoon normally begins withdrawing from the western-most part of Rajasthan from September 1.

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. If the southwest monsoon for the June-September monsoon season turns out good and if it is well distributed, it will help raise farm output, boost rural incomes and lower food inflation.

Coming back to stocks, the key benchmark indices slumped on Friday, 27 August 2010, on worries over the pace of the US economic recovery. US is the world's biggest economy. The BSE 30-share Sensex lost 227.94 points or 1.25% to 17,998.41 on Friday.

Foreign funds sold shares worth Rs 108.16 crore on Friday, 27 August 2010, as per provisional data from the stock exchanges. Domestic funds bought shares worth Rs 239.60 crore on that day.