Market seen extending Tuesday's losses

Weakness in global markets may continue to weigh on the domestic bourses. There are fears the global economic recovery may derail following series of poor economic data from the US. Trading of the S&P CNX Nifty futures on the Singapore stock exchange indicated that the Nifty could fall 19.50 points at the opening bell. In the derivatives segment, the near-month August 2010 derivatives contracts expire on Thursday, 26 August 2010



Prakash Steelage will debut on the secondary equity markets today. The company had raised Rs 68.75 crore selling 62.5 lakh shares.

Asian stocks declined on Wednesday, 25 August 2010, on weak US housing data and on data slowing export growth in Japan. The key benchmark indices in Japan, South Korea, Taiwan, Singapore, Hong Kong and China were down by between 0.12% to 2.17%. However Indonesia's Jakarta Composite rose 0.53%.

US markets closed sharply lower on Tuesday, 24 August 2010, after another disappointing report on housing renewed worries about the economy. The Dow Jones industrial average fell 133.96 to 10,040.45. The Dow dipped below the psychological 10,000 for the first time in seven weeks in intraday trade, but ended the day above that mark. The S&P 500 index lost 15.49 points to 1,051.87 and the Nasdaq Composite index declined 35.87 points to 2,1,23.76.

The fall came after the report of a 27.2% plunge in US home resales in July 2010 to their lowest level in 15 years. The housing data represented the latest in a string of disappointing economic reports that have pointed to a weakening economy.

Among global economic data, investors are keenly awaiting the revised US GDP data due on Friday, 27 August 2010.

Back home, the Union Cabinet on 20 August 2010, cleared a revised version of a Bill to govern civil liability in the event of nuclear damage to push forward the process of increasing the share of atomic power in electricity generation. The Nuclear Liability Bill is likely to get past Parliament without facing any more hurdles after the government sorted out the indifferences with the BJP and the Left. The bill is to be tabled in the Lok Sabha today.

Meanwhile, the government is reportedly likely to introduce the Direct Taxes Code (DTC) bill in the current monsoon session of the Parliament, but the constitution amendment bill on the goods and services tax (GST) will be delayed. DTC aims at reducing tax rates, but expanding the tax base by minimising exemptions.

Finance Minister Pranab Mukhejee said last week that he will not introduce the constitutional amendments required for the rollout of the indirect tax reform viz. the GST in Parliament until there is wide consensus on the matter. The GST is expected to bring down the incidence of total indirect taxes on goods and services as it prevents levy of tax on tax, or what is called cascading, and would provide for set-off of tax paid on a wider set of inputs including services.

The Reserve Bank of India (RBI) said in its annual report for 2009-2010 released on Tuesday, 24 August 2010, that the relative price variability has declined since November 2009 despite inflation remaining high, which indicates that the inflation has become increasingly generalised, and hence, requiring appropriate monetary policy actions to anchor inflation expectations. Persistent large fiscal deficit has several adverse macroeconomic risks, ranging from higher inflation to lower savings, crowding-out pressures on private investment, decline in potential output, and worsening of external imbalances, the RBI said in the report.

In a globalised world, a congenial global economic environment and a sustainable balance of payments position are critical for achieving the policy goal of stable growth, the RBI said in the annual report. Despite lower trade deficit, the decline in invisibles surplus led to a higher current account deficit of 2.9% of GDP during 2009-10 as compared with 2.4% of GDP a year ago. A higher current account deficit led to stronger absorption of foreign capital, the RBI said.

Given the stronger growth outlook of India and the probability of monetary exit being delayed by the advanced economies, capital inflows could be expected to accelerate, which will have to be managed, as in the past, the central bank said. The government's borrowing programme for 2010-11 has to be managed, keeping in view the pressure on yield from the elevated inflation, gradual withdrawal of excess liquidity and stronger pick-up in the private sector credit demand, the RBI said.

Going forward, as the monetary position is normalised, addressing structural constraints in several critical sectors is necessary to sustain growth and also contain supply side risks to inflation. The Reserve Bank of India has stated its commitment to containing inflation through its calibrated monetary policy normalisation, with clarity on the direction of the policy rates in the near-term as well as timely actions in cautious steps based on careful assessment of risks to both inflation and growth.

The conduct of monetary policy of the Reserve Bank of India, while being driven by the domestic outlook, will have to recognise the possibility of sudden changes in the global outlook, the central bank said. While managing global shocks, India will also have to increase its resilience and productivity levels so as to strengthen its position in the global economy, the RBI annual report said.

Trade Secretary Rahul Khullar on 24 August 2010, said India's trade deficit for the current fiscal year that ends in March 2011 is expected to be at least $120 billion. Any deficit of the order of $120 billion is serious, but as long as it does not go over the top it can be financed, Khullar said. The trade deficit for July 2010 is seen at $12.93 billion.

The Indian government on Monday, 23 August 2010, announced a bagful of stimulus measures in the latest review of the Foreign Trade Policy. To spur exports, Commerce and Industry Minister Anand Sharma announced a six-month extension of the Duty Entitlement Pass Book scheme (DEPB). The DEPB, which neutralises the incidence of duties, was supposed to expire on 31 December 2010. It will now expire on 30 June 2011. The additional export incentives will cost the government over Rs 1000 crore, Sharma said.

Coming back to stocks, foreign funds have made heavy purchases of Indian stocks over the past 2-1/2 months. Foreign funds on Tuesday, 24 August 2010, bought shares worth a net Rs 191.05 crore, as per provisional data from the stock exchanges. Domestic funds dumped shares worth a net Rs 689.54 crore on that day

Foreign funds have bought equities worth a net Rs 7538.11 crore so far this month, till 24 August 2010, absorbing selling of Rs 3998.89 crore from domestic funds, as per data from the stock exchanges.

Foreign funds had 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.

Amid growing hopes of a bumper kharif harvest thanks to further improvement in monsoon rainfall, worries persist over the unabated poor crop sowing in some parts rain-starved eastern region. Overall, nearly 90% of the total normal kharif acreage has already been seeded till 20 August 2010 and the standing crops are reportedly in good shape. Water status of most reservoirs is also getting better rapidly and is now just three per cent short of normal, reports suggest.

A ray of hope for the drought-hit eastern region has emerged from the India Meteorological Department (IMD) which has predicted widespread showers in eastern Uttar Pradesh, Bihar, sub-Himalayan West Bengal, Sikkim, Assam and Meghalaya in the rest of this month. That will help farmers in this region grow coarse cereals, pulses and fodder.

The cumulative rainfall during the period from 1 June 2010 to 24 August 2010 was 3% below normal. The Southwest monsoon was vigorous over Rayalaseema and South Interior Karnataka and active over Jammu & Kashmir, Uttar Pradesh, Bihar, Sub-Himalayan West Bengal & Sikkim, Telangana and North Interior Karnataka during past 24 hours, the India Meteorological Department (IMD) said in its daily update on Tuesday, 24 August 2010.

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. 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.

On the macro front, data on 19 August 2010 showed the primary articles index rose 14.85% in the year to 7 August 2010, lower than previous week's annual rise of 15.66%. The food price index rose 10.35%, lower than previous week's annual rise of 11.4%, as prices of vegetables, potatoes and onions fell. The fuel price index rose 12.57%, lower than previous week's annual rise of 12.66%.

The liquidity situation in the financial markets has improved, a senior Reserve Bank of India (RBI) official said on 20 August 2010. The Reserve Bank of India (RBI) is also keeping a close watch on the liquidity situation, said Janak Raj, an adviser at the RBI's monetary policy division.

Chief Statistician T.C.A. Anant on 19 August 2010 said the headline inflation is expected to ease further in coming months. The headline inflation eased in July 2010, fuelling expectations that the central bank may lessen the scale and pace of increase in interest rates.

Saumitra Chaudhuri, a Planning Commission member in charge of economic development recently said inflation has peaked and would start easing at a faster rate from September 2010. The Reserve Bank of India will undertake a mid-quarter monetary policy review on 16 September 2010, as per the schedule. Finance Minister Pranab Mukherjee said this month rising prices were a cost of rapid economic growth.

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 at that time 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.

India needs to channelise more pension and insurance funds into the infrastructure sector, Finance Minister Pranab Mukherjee said in a government statement released on 18 August 2010. India plans to spend $1.5 trillion between 2007 and 2017 to upgrade its infrastructure to support double-digit economic growth rates.

India's exports in July grew an annual 13.2% to $16.24 billion, Trade Secretary Rahul Khullar said on 17 August 2010, the ninth straight month of expansion. Imports for the month rose 34.3% to $29.17 billion, he said.

The industrial output rose 7.1% in June 2010 compared with revised 11.3% rise in May 2010, the latest data showed. Manufacturing grew 7.3%, mining sector grew 9.5%, consumer goods sector rose 8.3%, capital goods sector expanded 9.7% and electricity generation rose 3.5%.

The industrial production growth rate for May 2010 was revised marginally down to 11.3% from 11.5% reported earlier. The growth rate for March 2010 was revised upward to 14.5% from 13.9% reported earlier.

Coming back to stocks, fears of a slowdown in global growth spooked equity and commodity markets across the globe on Tuesday, 24 August 2010, with Indian stocks being no exception. The BSE 30-share Sensex lost 97.76 points or 0.53% to 18,311.59 and the S&P CNX Nifty shed 38.40 points or 0.69% to 5,505.10.