Market may edge lower on weak Asian stocks

The market may edge lower in opening trade tracking weak Asian stocks. Trading of the S&P CNX Nifty futures on the Singapore stock exchange indicated that the Nifty could fall 1.50 points at the opening bell.



Commercial vehicle maker Tata Motors will announce its Q1 consolidated result today.

Most Asian shares fell on Tuesday, 10 August 2010, as cautious investors locked in recent gains ahead of Chinese trade data and the US Federal Reserve's monetary policy decision, both due later in the day. The key benchmark indices in China, Singapore, Taiwan, Indonesia, Hong Kong, South Korea were down by between 0.09% to 0.57%. But, Japan's Nikkei Average rose 0.53%.

US stocks rose on Monday in the quietest session of the year on speculation that the Federal Reserve would signal potential steps to boost the sluggish economic recovery. It is expected the central bank could resume purchases of certain debt securities to lower interest rates to encourage borrowing. It could also halt payment of interest on banks' excess reserves to encourage lending.

The Dow Jones Industrial Average was up 45.19 points or 0.42% at 10,698.75. The Standard & Poor's 500 Index was up 6.15 points, or 0.55% at 1,127.79. The Nasdaq Composite Index was up 17.22 points or 0.75% at 2,305.69. The US Federal Reserve holds a regular policy meeting on interest rates today, 10 August 2010.

Back home, foreign institutional investors (FIIs) continue to mop up Indian equities. As per provisional figures released by the stock exchanges, foreign funds on Monday, 9 August 2010, bought shares worth Rs 522.12 crore. Domestic funds sold shares worth Rs 45.51 crore.

Foreign funds bought equities worth a net Rs 3284.32 crore in the first six trading days this month, till 9 August 2010, absorbing selling of Rs 1175.12 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.

Meanwhile, the government has relaxed the requirement of minimum 25% public shareholding for listed state-run firms. It may be recalled that the government in early June 2010 had announced changes in the Securities Contracts (Regulation) Rules 1957, so as to ensure that all listed companies maintain a minimum public float of 25%. Existing listed companies having less than 25% public holding have to reach the stipulated level by an annual addition of not less than 5% to public holding, the government had said at that time. The new rule had raised concerns there will be a deluge of share sales from government-owned firms to meet the minimum 25% public shareholding requirement.

As per the relaxed norms, listed state-owned companies that have less than 10% public stake will have to reach that threshold over a period of three years, but those listing through a public offer will comply with the 10% norms at the time of listing in one go. The modified rules also gave a breather to the private sector companies. They will have to comply with the minimum 25% public float within three years but they will now have flexibility in how the limit is reached, without the annual 5% increase mandated in the current rules.

On the corporate results front, the combined net profit of a total of 2352 Indian companies fell 8.8% to Rs 59,187 crore on 20.5% rise in sales to Rs 7,28,373 crore in Q1 June 2010 over Q1 June 2009.

The government will announce industrial output data for the month of June 2010 on 12 August 2010.

Analysts expect the Reserve Bank of India 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.

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

Car sales in India rose an annual 38% in July 2010 to a record 1,58,764 unit, compared with 1,15,084 units a year ago, as per the latest data. Sales of trucks and buses, a barometer of economic activity, rose an annual 37% to 51,481 units in July 2010. Motorcycle sales in July 2010 rose to 7,10,621 units from 546,233 units a year earlier.

Meanwhile, a further improvement in monsoon rains has accelerated kharif planting. The total area brought under the crops is estimated to be higher than last year's level by good 8.4%, reports suggest. The overall rainfall in the whole country was 16% above normal in the week ended 4 August 2010.

The overall kharif prospects remain bullish as 85% of the country's total area has received normal or above normal rainfall, reports suggest. The area coverage is more than last year in the case of all crops, including rice, coarse cereals, pulses, oilseeds, sugarcane, cotton and jute, reports suggest. The crop stand is reported to be good and so far there has been no report of any major attack of disease or pests. Though white fly pest has appeared on cotton in some pockets of Punjab and Rajasthan, but the incidence is below the threshold level till now in most cases.

The improvement in rainfall has also resulted in a spectacular improvement in the water stock in reservoirs, reports suggest. The total water storage in the 81 major reservoirs stood at 52.09 billion cubic metres (BCM) as on 5 August 2010, against 28.65 BCM a fortnight ago. The present storage is a mere 6% short of normal, against 35% a fortnight ago, reports suggest. However, the water balance is still worrisome in reservoirs in the eastern region where the monsoon is yet to pick up full momentum.

The cumulative rainfall during the period from 1 June 2010 to 8 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, according to the India Meteorological Department (IMD). 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%, according to the weather office.

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.

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.

Media reports that the government has relaxed the requirement of minimum 25% public shareholding for listed state-run firms send the key benchmark indices surging to 2-1/2-year highs on Monday, 9 August 2010. A further improvement in the southwest monsoon rains, sustained buying by foreign funds and firm global stocks, also underpinned sentiments. The BSE 30-share Sensex rose 143.51 points or 0.79% to 18,287.50, its highest closing level since 5 February 2008.