Market may open flat to slightly lower; industrial production data eyed

The market may open flat to slightly lower amid mixed Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate that the Nifty could fall 7 points at the opening bell.



In macro news, the government will unveil data on industrial production for August 2010 today. Industrial production had jumped a robust 13.8% in July 2010.

Asian stocks mixed on Tuesday as investors turned cautious, taking a wait-and-see stance, ahead of the release of corporate earnings this week from top US companies. The key benchmark indices in China, Hong Kong and Indonesia rose by between 0.01% to 0.05%. But, the key benchmark indices in South Korea, Singapore, Taiwan and Japan fell by between 0.08% to 0.88%.

Earnings season in the US kicks off this week, with chip maker Intel Corp reporting today, 12 October 2010, to be followed by J.P. Morgan Chase & Co on Wednesday, 13 October 2010, Google Inc. on Thursday, 14 October 2010 and General Electric Co on Friday, 15 October 2010.

A slowdown in economic growth in the world's developed countries looks increasingly likely, the Organisation for Economic Co-operation and Development (OECD) said on Monday, highlighting signs the recovery may now have peaked in the United States. The OECD said its August composite leading indicator (CLI) for the 32-nation OECD area fell for the fourth month in a row, shedding 0.1 point to 102.9. The outlook given by the CLIs for Canada, France, Italy, the United Kingdom, Brazil, China and India points strongly to a downturn, the Paris-based OECD said.

Back home, foreign funds continue to aggressively mop up Indian stocks. Net equity inflow in 2010 now stands at a record $21.60 billion, above last year's $17.45 billion, as per data from the Securities & Exchange Board of India (Sebi). The Sebi data includes FII inflow through primary and secondary market route.

A sizable chuck of FII inflow this year is from India-focused exchange traded funds as well as long-only funds.

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 14000 crore to Rs 15000 crore from divestment of 10% stake in Coal India. The Coal India IPO is billed as the country's largest issue ever. The IPO of Coal India opens for bidding on 18 October 2010.

As per media reports, a government panel is likely to recommend a price band of Rs 220-240 a share for Coal India's initial public offering. A final decision on the price band will be taken by a group of ministers, headed by Finance Minister Pranab Mukherjee, on Tuesday, 12 October 2010. The Indian government is selling roughly 63.16 crore Coal India shares, or 10% of the company.

The next major trigger for the stock market is Q2 September 2010 results. Brokerage earnings estimates will now roll over to FY 2012 (year ending March 2012).

Tier-I IT firms viz. Infosys, TCS, Wipro, and HCL Tech are seen reporting strong earnings growth in Q2 September 2010 as high volumes will boost operating margins. However, the IT sector faces headwind of a firm rupee in Q3 December 2010. The rupee hit a 2-year high against the dollar on Thursday, 7 October 2010. Higher volumes and price hike will aid earnings growth of most auto firms in Q2 September 2010 though analysts will closely eye operating profit margins and outlook on margins in the face of rising metal prices

Banks are seen reporting decent-to-strong earnings growth on the back of pick-up in credit offtake. Manufacturers of base metals are also seen reporting strong Q2 results on the back of higher metal prices. Increase in product prices will offset higher input costs for consumer staples firms in Q2 September 2010. But, cement firms will report dismal results due to a sharp fall in cement prices during the monsoon season.