Market may open flat; food inflation data eyed

The market may open flat amid lack of a clear direction from Asian equities, which were mixed. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate that the Nifty could see a flat opening.



In macro news, the government will unveil data on some wholesale price indices for the year through 25 September 2010 viz. the food price index, the primary articles index and the fuel price index at about 12:00 IST today.

The International Monetary Fund (IMF) raised its India growth forecast for 2010. Indian economy will grow 9.7% in 2010 up from July forecast of 9.4% IMF said on Wednesday. IMF has forecast 8.4% growth for India in 2011. The world economy, led by emerging markets, is forecast to grow by 4.8% in 2010 before falling back to 4.2% next year, but a sharper global slowdown is unlikely, the IMF said.

Asian stocks were mixed on Thursday. The key benchmark indices in Singapore, South Korea and Indonesia fell by between 0.19% to 0.55%. But, the key benchmark indices in Taiwan, Japan and Hong Kong rose by between 0.12% to 0.32%. Chinese markets remained closed for a holiday and were slated to reopen Friday.

Data overnight showed US private sector employment surprisingly shrank in September 2010.

Back home, foreign funds continue to aggressively mop up Indian stocks. Net equity inflow in 2010 now stands at a record $20.52 billion, above last year's $17.45 billion, as per data from the Securities & Exchange Board of India. The Sebi data includes FII inflow through primary and secondary market route.

But, a section of the market is concerned that a strong equity issuance pipeline over the next six months will soak liquidity from the secondary equity markets. Indian companies are estimated to raise about Rs 36000 crore from share sales over the next three to six months. This includes a large initial public offer (IPO) from Coal India this month. The government plans to raise about Rs 15000 crore to Rs 16000 crore from divestment of 10% stake in Coal India. The Coal India IPO is billed as the country's largest issue ever. The issue is expected to open for subscription around 20 October 2010.

Reserve Bank of India deputy governor Subir Gokarn on Tuesday, 5 October 2010, said the central bank is considering measures to deal with an influx of foreign fund flows. A rising rupee is a bad news for exporters, particularly the labour-intensive segments such as textiles and leather. The government has recently extended sops to some of the labour intensive export sectors.

On Monday, 4 October 2010, Finance Minister Pranab Mukherjee said there was no need to intervene in the foreign exchange market or cap foreign portfolio inflows. "As long as the capital flows are in excess of the current account deficit the pressure to appreciate will continue and it could potentially disrupt," RBI's Gokarn said on Tuesday.

India requires sustained foreign investment to plug its widening current account deficit, which has been worsened by a yawning trade deficit.

Business activity in the Indian services sector expanded at a considerably slower pace in September 2010 than in the previous month, with the index falling to a 10-month low mainly due to weakness in incoming new business. The HSBC Markit Business Activity Index, based on a survey of 400 Indian firms, saw its third consecutive fall, easing to 55.6 from 59.3 the previous month, but staying above the 50 mark that divides growth from contraction for the 17th month.

India's manufacturing sector continued to expand although at a considerably slower pace than in preceding months, predominantly weighed down by a fall in new orders and output. The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, slid to 55.1 in September 2010, which marks the lowest reading since November last year, from 57.2 in the August 2010 survey. Though the key index for manufacturing in Asia's third largest economy has slipped, this was the 18th consecutive month it has remained above the 50 mark that divides growth from contraction.

India needs to take "drastic" action to control inflation, Reserve Bank of India deputy governor Gokarn said on Tuesday, 5 October 2010. He was giving a speech at a private equity conference. He said inflation remains well above the Reserve Bank's comfort zone. Gokarn said normalisation of monetary policy was now near completion, and further policy action would depend on upcoming data on growth and inflation.

An unavoidable consequence of runaway inflation is that drastic action by the central bank and also by the government is needed to rein it in, which is bound to disrupt growth process, Gokarn said. His comments strengthened the possibility of a rate hike at the RBI's next policy review, on 2 November 2010. Food and energy price shocks have been a regular part of the economic landscape and may continue to be so in the future, Gokarn said.