Market seen opening lower on weak global cues

The market may see a negative start on weak global cues. Asian markets were trading lower following an overnight decline in US stocks, which fell on lingering worries about the health of the US economy. Trading of the S&P CNX Nifty futures on the Singapore stock exchange indicated that the Nifty could fall 14 points at the opening bell.



Oil & Natural Gas Corporation (ONGC) has been reportedly instructed by the country's oil ministry to study the possibility of making an offer for a stake in Cairn India, countering Vedanta Resources Plc's $9.6 billion bid.

Asian stocks fell on Tuesday, 24 August 2010, on speculation of a downbeat US home sales report due later in the global day. The key benchmark indices in Japan, China, South Korea, Hong Kong, were down by between 0.05% to 1.18%. But, key benchmark indices in Taiwan and Jakarta were up 0.01% and 0.07% respectively

US stocks fell on Monday, 23 August 2010, despite acquisition offers from companies including Hewlett-Packard as investors remained concerned about the broad economic weakness. The Dow Jones Industrial Average declined 39.21 points, or 0.38%, to 10174.41. The Nasdaq Composite dropped 20.13, or 0.92%, to 2159.63, and the Standard & Poor's 500 index fell 4.33, or 0.40%, to 1067.36.

Back home, in an attempt to boost exports, the 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.

Foreign funds have made heavy purchases of Indian stocks over the past 2-1/2 months. Foreign funds bought shares worth a net Rs 318.23 crore on Monday, 23 August 2010, as per provisional data from the stock exchanges. Domestic funds sold shares worth a net Rs 159.78 crore on that day.

Foreign funds have bought equities worth a net Rs 7347.07 crore so far this month, till 23 August 2010, absorbing selling of Rs 3309.35 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 23 August 2010 was 3% below normal. The Southwest monsoon was active over Arunachal Pradesh, Sub-Himalayan West Bengal & Sikkim, Bihar, Uttar Pradesh, Haryana, Chandigarh & Delhi, Himachal Pradesh and Rayalaseema during past 24 hours, the India Meteorological Department (IMD) said in its daily update on Monday, 23 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.

The goods and services tax (GST) may reportedly make a debut on 1 June 2011 (GST) as the government is no mood to delay the ambitious indirect tax reform by another year. Its planned rollout from April next year now looks uncertain due to opposition from BJP-ruled states, which fear an erosion of their fiscal autonomy.

As per reports, the government is going ahead with the preparations so that GST can be rolled out quickly after a political consensus is reached on the architecture of this reform. The constitution amendment bill for the rollout of GST has to be passed by both the houses of Parliament and at least 15 state assemblies. Finance Minister Pranab Mukhejee said last week that he will not introduce the constitutional amendments required for the indirect tax reform in Parliament until there is wide consensus on the matter.

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 government is likely to place the bill on the Direct Taxes Code (DTC) in the ongoing Monsoon session of Parliament. The Direct Tax Code (DTC) is being proposed as a replacement for the Income Tax Act, 1961, and is likely to come into effect from 1 April 2011.

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. However, the Nuclear Liability Bill faced fresh roadblocks on Sunday, 22 August 2010, with the Bhartiya Janata Part and the Left parties asserting that they would oppose any dilution of the suppliers' liability.

On the macro front, multilateral lender Asian Development Bank may raise inflation forecast for India at its next Economic Outlook slated for 28 September 2010, depending on progress of the monsoon rains. ADB has forecast a 8.2% GDP growth for 2010 and average inflation of 5% for the year.

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 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, the key benchmark eked out tiny gains in a volatile trading session on Monday, 23 August 2010. The BSE 30-share Sensex was up 7.53 points or 0.04% to 18,409.35. The S&P CNX Nifty was up 12.85 points or 0.23% to 5,543.50, its highest closing since 18 January 2008.

The market may remain volatile this week as traders roll over positions in derivatives segment from the August 2010 series to the September 2010 series ahead of the expiry of the near-month August 2010 contracts this Thursday, 26 August 2010.