Market may extend Monday's strong gains

The market may edge higher extending Monday (September 2010)'s spectacular rally as most of Asian stocks ticked higher. Sustained buying by foreign funds and good rains may continue to drive share prices higher. Trading of the S&P CNX Nifty futures on the Singapore stock exchange indicate that the Nifty could gain 10 points at the opening bell.



Most Asian stocks edged higher on Tuesday as investors awaited flood of Chinese data. The key benchmark indices in Hong Kong, Indonesia, South Korea, Taiwan were up by between 0.02% to 0.43%. But, the key benchmark indices in China, Japan and Singapore fell by between 0.21% to 0.26%.

Risk-taking has been supported by stronger-than-expected US factory and jobs data late last week, which eased market fears about a double-dip recession in the world's biggest economy.

Trading of US index futures indicated that the Dow could gain 22 points at the opening bell on Tuesday, 7 September 2010. The US stock market was closed on Monday, 6 September 2010, for the Labor Day holiday.

US president Barack Obama is expected to announce that businesses will be allowed to write off 100% of all new investments in plant and equipment in 2011, The Wall Street Journal reported Monday, 6 September 2010. The president is expected to make the announcement on Wednesday, 8 September 2010, with the tax break to be retroactive from the same day, according to the report. Congress will need to approve the proposal which, if implemented, would cut business taxes by almost $200 billion over a two-year period, the report said. On Monday, Obama unveiled a $50 billion plan to upgrade roads, airports and railways as part of an effort to create jobs and support the US economic recovery.

Closer home, foreign funds continue to mop up Indian stocks. Foreign funds bought shares worth a net Rs 946.53 crore on Monday, 6 September 2010, as per the provisional data released by the stock exchanges. Domestic funds bought shares worth a net Rs 392.13 crore on that day.

Foreign funds have bought shares worth a net Rs 1671.67 crore in the first four trading sessions this month, as per data from the stock exchanges. Their inflow in calendar 2010 has reached Rs 21166.76 crore.

Meanwhile, good rains in August 2010 and continuation of the wet spell in the first week of September 2010 has strengthened the optimism about a record kharif harvest this season. Further, the weather office's prediction that the monsoon will not start withdrawing before mid-September 2010 has boosted the outlook for the next rabi as well.

The kharif sowing is more or less over in most of the country, barring some pockets in the east where soil moisture remained inadequate for seeding till the second half of August 2010. Paddy growers in such tracts of Jharkhand, West Bengal and Bihar are now sowing alternative crops like urad, moong, nigerseed and fodder on the advice of agriculture experts and officials of the state agriculture departments, as per media reports.

With 16% above-normal rainfall in the last week of August, the overall deficiency in the season's cumulative monsoon rainfall till 4 September 2010 has shrunk to just 1%, from 5% at July-end and 16% at June-end. The forecast issued by the India Meteorological Department (IMD) projects 15% excess rainfall in September 2010, the last month of the four-month monsoon season (June to September). The rain-starved tract in the north-east is also projected to receive good rainfall till at least 10 September 2010. The cumulative seasonal rainfall in the eastern region as a whole, however, may remain in the deficient domain, according to IMD.

While the traditional high rainfall region in the east and north-east has remained rain deficient in this monsoon this, the usually arid tracts, such as western Rajasthan, Leh and Ladakh in Jammu and Kashmir, Vidarbha, Marathwada, Saurashtra and Kutch, have got excess rainfall in the current monsoon season. This has facilitated extensive sowing of coarse cereals, pulses and cotton in these tracts, as per media reports. High ruling prices of these commodities has also encouraged the farmers to go for these crops.

The good and sustained waterfall since the last week of July, moreover, has refilled most of the reservoirs which were depleted substantially due to last year's drought. According to the Central Water Commission, total water stock in the 81 major reservoirs was 90.777 million cubic metres (BCM) on 1 September 2010. This level is nearly 34% above the last year's corresponding level and 2% above the long period average.

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.

Coming back to stocks, the key indices scaled 31-month highs on Monday, 6 September 2010, on signs the global economic recovery is on track. Stocks rose across the globe as better-than-expected US payrolls data late last week eased market anxiety over chances of a double-dip recession in the world's biggest economy. The BSE 30-share Sensex rose 338.62 points or 1.86% to 18,560.05, its highest closing since 5 February 2008.