Market may edge lower on weak Asian stocks

The market may edge lower for the second straight day, tracking subdued Asian stocks which fell after overnight losses on Wall Street. Trading of the S&P CNX Nifty futures on the Singapore stock exchange indicated that the Nifty could fall 9.50 points at the opening bell.



Asian stock markets fell in early trading Friday, 6 August 2010, dragged down by renewed worries over the pace of the economic recovery as US jobless claims rose unexpectedly. Investors are now awaiting the influential US non-farms payrolls data for July 2010 due later later in the day. The key benchmark indices in China, Taiwan, South Korea, Singapore, Hong Kong and Japan were down by 0.16% to 0.83%. But, Indonesia's Jakarta Composite rose 0.19%.

US non-farm payrolls for July are expected to show a drop of 60,000 private-sector jobs after a 125,000 fall the previous month.

US stocks edged lower on Thursday 5 August 2010 as an unexpected rise in initial jobless claims and unimpressive July retail sales dimmed optimism ahead of the monthly payrolls report. The Dow Jones Industrial Average slipped 5.45 points or 0.05% to 10,674.98. The Standard & Poor's 500 Index dropped 1.43 points, or 0.13% to 1,125.81. The Nasdaq Composite Index lost 10.51 points, or 0.46% to 2,293.06.

Thursday's data showed initial claims for jobless benefits rose to 479,000, the highest level since early April. Weakness in consumer spending trends also stayed in focus as the 28 retailers tracked by Thomson Reuters reported July same-store sales that rose only 2.9%, falling short of expectations.

Back home, gross domestic product (GDP) may grow 8.4% in the 2010/11 year, a Reserve Bank quarterly survey of economists showed, raising their forecast from 8.2% in the last survey. The median forecast for WPI inflation in the first quarter of 2010/11 is at 10.4% according to RBI's survey, higher than 9.5% in the previous survey. The forecasters have assigned highest 25.8% chance that it will fall in 6% to 6.9% range in end-March 2010-11, it added. Central government's fiscal deficit is seen at 5.2% of GDP in the FY 2011, as against its previous forecast of 5.6% according to the survey.

GDP growth in the April-June 2011 quarter is seen at 8.7% up from 8.1% in the last survey. For the July-September quarter, GDP growth is placed at 8.2% compared with 8.3% in the last quarterly survey.

Analysts expect the central bank to raise interest rates by 25 basis points at a mid-quarter monetary policy review on 16 September 2010, to rein in inflation and inflation expectations. The latest data showed the food price index rose 9.53% in the year to 24 July 2010 while the fuel price index climbed 14.26%. Food inflation eased from the week-ago figure of 9.67% and fuel inflation also eased from the previous week's reading of 14.29%. The primary articles index rose 14.36%, compared with the week-ago reading of 14.5%.

The Reserve Bank of India (RBI) at its Q1 monetary policy on 27 July 2010 raised a key lending rate by 25 basis points to curb surging inflation. With growth taking firm hold, the balance of policy stance has to shift decisively to containing inflation and anchoring inflationary expectations, the RBI said at that time. The RBI also signaled its strong preference for tight liquidity, saying it would ensure that excess liquidity in the system doesn't dilute the effectiveness of policy-rate actions.

The good news is that the vital monsoon rains were 16% above normal in the week to Wednesday, 4 August 2010, the second highest in the current season, the weather office said on Thursday, 5 August 2010. Rains were 38% above normal in the week to 28 July 2010, the highest in this season.

The revival of monsoon rains in the crucial sowing month of July 2010 augurs well for the Indian economy which is driven by strong domestic demand. Over 64.7 million hectares had been brought under the crop cover by 22 July 2010. This is about 5.4 million hectares more compared with 59.3 million hectares planted last year till this date.

An overall 1% above-normal rainfall in whole July has facilitated extensive crop sowing even in the traditionally arid tracks of Rajasthan, Gujarat and Maharashtra. This has facilitated higher area coverage under rain-dependent, but high priced crops like cotton, pulses and coarse cereals. Kharif sowing is expected to be largely over by the middle of this month in most parts of the country.

The cumulative rainfall during the period from 1 June 2010 to 5 August 2010 was 2% below normal. Rainfall over the country as a whole for the second half (August to September) of the 2010 southwest monsoon season is likely to be normal, the India Meteorological Department (IMD) said late last week. Quantitatively, rainfall for the country as a whole during the period August-September 2010 is likely to be 107% of long period average (LPA) with a model error of plus/minus 7%, it said.

The southwest monsoon was active over West Rajasthan, Gujarat Region, Chhattisgarh and Orissa during past 24 hours, the India Meteorological Department (IMD) said in its daily update on Thursday, 5 August 2010. The weather office expects fairly widespread rainfall over west coast, Gujarat region, northwest India and northeastern states, over the next few days.

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.

Water level in main reservoirs was at 27% of capacity in the week to 29 July 2010, up from 19% in the previous week. Reservoirs are important for hydropower, which accounts for a quarter of the nation's generation capacity. They also provide water to irrigate winter crops such as wheat and rapeseed.

Back home, foreign funds continue to mop up Indian equities. As per provisional figures on NSE, foreign funds bought shares worth Rs 73.02 crore on Thursday, 5 August 2010. Domestic funds sold shares worth Rs 187.81 crore that day.

Foreign funds bought equities worth a net Rs 2097.26 crore in the first four trading days this month, till 5 August 2010, absorbing selling of Rs 789.03 crore from domestic funds, as per data from the stock exchanges.

Foreign funds bought shares worth a net Rs 8320.50 crore in July 2010, absorbing selling by domestic institutional investors. Domestic funds sold shares worth a net Rs 6323.13 crore in July 2010.

Foreign funds had pumped in Rs 7713.97 crore in equities in June 2010, absorbing selling by domestic funds in that month. Domestic funds had dumped shares worth a net Rs 4777.05 crore in June 2010.

On the corporate front, the combined net profit of a total of 2026 companies fell 9.4% to Rs 57,158 crore on 20.7% rise in sales to Rs 7,05,759 crore in Q1 June 2010 over Q1 June 2009.

On the macro front, the surging services industry expanded for the 15th month in July, but at a slower pace than the two-year peak in June, with only growth in input prices picking up speed, a survey showed on Wednesday, 4 August 2010. The HSBC Markit Business Activity Index, based on a survey of 400 Indian firms, eased to 61.7 in July from 64 the previous month, staying comfortably above the 50 mark that divides growth from contraction.

The prices charged index saw a negligible fall from last month's levels, but the survey said it still pointed to another solid increase in rates charged by Indian service providers. Employment and outstanding business growth nearly ground to a halt, the survey showed.

The manufacturing expansion picked up pace in July 2010, driven by new orders, stronger factory output and rising prices even as hiring stagnated, a survey showed on Monday, 2 August 2010. The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, edged up to 57.6 in July 2010 from 57.3 in June 2010 when it slipped from a multi-year high.

The factory output index jumped to a four-month high of 62.3 in July from 60.5 in the prior month, pointing to a rate of expansion in production that was above the trend since the end of the financial crisis, according to survey compilers Markit. But, Indian manufacturers shed jobs for the first time in four months in July.

Most automobiles firms including Tata Motors, Maruti Suzuki, Hero Honda and Bajaj Auto have reported strong sales in the month just gone by.

The Reserve Bank of India (RBI) at its Q1 monetary policy on 27 July 2010 raised its economic growth and inflation forecasts. The RBI raised GDP forecast to 8.5% for the year ending March 2011 (FY 2011), from 8% with an upside bias earlier.

The RBI also raised the baseline projection for inflation based on wholesale price index for March 2011 to 6% from 5.5% indicated in the April 2010 policy statement, taking into account the emerging domestic and external scenario. The RBI said its outlook on inflation will partly be shaped by the distribution of monsoon rains and their impact, as the agricultural harvest will be crucial to easing currently high food prices in the country.

The Reserve Bank of India said the economy could face a significant risk in the form of a slowdown in capital flows, at a time when the current account deficit is widening. In its first quarterly review of monetary policy, the Reserve Bank of India said that a potential slowdown in capital inflows could impact the current and trade deficit. The current deficit is already widening as imports continue to rise with the rebound in economic growth.

The RBI has said that the risk of capital flows runs both ways. Given the present state of the global economy, central banks in advanced economies are likely to maintain accommodative monetary policies for an extended period. With the strong growth potential of emerging market economies, including India, this is likely to trigger large capital inflows. Large capital inflows above the absorptive capacity of the economy will pose a challenge for monetary and exchange rate management. This also has implications for asset prices. In this scenario, a widening current account deficit will help absorb a larger proportion of the inflows.

A likely increase in interest rates by the Reserve Bank of India (RBI) at a mid-quarter policy review on 16 September 2010 triggered profit taking on the bourses on Thursday, 5 August 2010 after the key benchmark indices struck 2-1/2-year highs at the onset of the trading session. The BSE 30-share Sensex declined 44.61 points or 0.24% to 18,172.83 on Thursday.