Market may open flat; IT stocks in focus

The market may open higher if trading of the S&P CNX Nifty futures on the Singapore stock exchange is any indication. It indicated that the Nifty could gain 5 points at the opening bell. Sustained buying by foreign funds over the past two months and revival of monsoon rains in the crucial sowing month of July 2010, may support equities. Asian stocks were mixed on Wednesday.



IT stocks will be on focus after IT major Cognizant reported stellar results and raised its guidance significantly.

Asian stocks were mixed in early trade Wednesday, following a slew of bad financial news in the US that soured investors and sent shares lower in New York on Tuesday, 3 August 2010. The key benchmark indices in Singapore, Japan, China and South Korea fell by between 0.34% to 1.5%. The key benchmark indices in Hong Kong, Taiwan and Indonesia were up by between 0.17% to 0.52%.

US stocks slipped on Tuesday, 3 August 2010, as Dow component Procter & Gamble Co.'s lackluster results, coupled with weaker-than-estimated data on consumer spending and housing, prompted investors to exercise caution a day after Monday's (2 August 2010) rally. The Dow Jones Industrial Average dropped 38.00 points, or 0.36% to 10,636.38. The Standard & Poor's 500 Index shed 5.40 points, or 0.48% to 1,120.46. The Nasdaq Composite Index lost 11.84 points, or 0.52% to 2,283.52.

Back home, foreign funds continue to mop up Indian stocks. As per provisional figures provided by the stock exchanges, foreign funds bought shares worth Rs 607.62 crore on Tuesday, 3 August 2010. Domestic funds sold shares worth Rs 152.52 crore that day.

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, as per data from the stock exchanges.

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.

Asia ex-Japan equity funds absorbed more than $1 billion in the week ended 28 July 2010, their biggest inflow in 14 weeks, according to data from global fund tracking firm EPFR Global. Indian equity funds posted an eighth consecutive week of inflows and China stock funds recorded the biggest weekly intake since mid-April 2010.

On the corporate front, the combined net profit of a total of 1,829 companies fell 10% to Rs 56043 crore on 20.8% rise in sales to Rs 6,95,522 crore in Q1 June 2010 over Q1 June 2009.

On the macro front, 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 reported strong sales in the month just gone by.

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. The annual monsoon rains were 38% above normal in the week to 28 July 2010, bouncing back from a 17-percent deficit in the previous week, the weather office said on 29 July 2010. The cumulative rainfall during the period from 1 June 2010 to 3 August 2010 was 2% below normal.

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 southwest monsoon was vigorous over West Rajasthan and Saurashtra & Kutch and active over Andaman & Nicobar Islands, Himachal Pradesh, East Rajasthan, East Madhya Pradesh, Gujarat Region, Vidarbha and Chhattisgarh during past 24 hours, India Meteorological Department (IMD) said in its daily update on Tuesday, 3 August 2010. The IMD expects fairly widespread rainfall over plains of northwest India and north Peninsula and adjoining central India over the next few days.

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 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 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.

The Reserve Bank of India (RBI) at its Q1 monetary policy on Tuesday, 27 July 2010, raised its key short term interest rates for the fourth time this year to curb surging inflation. The central bank also 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 central bank said the upward revision in growth forecast is primarily based on better industrial production and its favourable impact on the services sector and also giving due consideration to the global scenario.

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 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.

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.

The key benchmark indices eked out small gains on Tuesday, 3 August 2010, as banking stocks and index heavyweight Reliance Industries (RIL) rose. The BSE 30-share Sensex was up 33.62 points or 0.19% to 18,114.83 on Tuesday.