Market may snap last two days fall on firm Asian stocks

The market may snap last two days fall on firm Asian stocks. The Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate that the Nifty could gain 35.50 points at the opening bell.



Asian stocks rose on Monday as resource sector shares extended their climb on expectations of further U.S. monetary easing. The key benchmark indices in China, Hong Kong, Indonesia, South Kroea and Singapore rose by between 0.23% to 1.7%. But, Taiwan's Taiwan Weighted fell 0.17%. Japanese markets remains shut today.

In US markets, the Dow Jones Industrial Average closed above the 11,000 mark for the first time in five months on Friday, 8 October 2010 as a surprisingly weak jobs report strengthened the case for more stimulus from the Federal Reserve.

The International Monetary Fund concluded two days of talks in Washington Saturday 9 October 2010 without reaching a solution to address rising tensions about currency exchange rates. Meanwhile, the World Bank says it does not believe these issues will overshadow talk of development at next month's G-20 meeting. A communiqueì issued Saturday at the conclusion of the International Monetary Fund meetings says the IMF pledges to "deepen its work" in areas including global imbalances and exchange rate movements. Talk of currency disputes and the need for structural rebalance dominated the talks in Washington, as did a push to implement reforms. The IMF said that further action is needed to enhance regulation and supervision.

Back home, India would intervene in the foreign exchange markets if needed to maintain stability, the Reserve Bank of India's (RBI) governor said during a panel discussion at the International Monetary Fund in Washington on Saturday. "If the inflows are lumpy and volatile or if they disrupt the macroeconomic situation, we will do so," RBI Governor Duvvuri Subbarao said of intervention. Our intervention will be to keep liquidity conditions consistent with activity in the real economy and to maintain financial stability and not to stand against developments driven by changing economic fundamentals," Subbarao said.

He said India has not intervened because its absorption of inflows has increased as the current account deficit widens on a surge in imports on an upbeat outlook for growth and investment." Economies that have current account surpluses or only small deficits have intervened. That does not mean we won't intervene," Subbarao said.

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. The rupee hit a two-year high against the dollar on Thursday, 7 October 2010. 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.

Mukherjee said on Thursday, 7 October 2010, that huge surpluses in some countries and large deficits in others are "unsustainable" and should be addressed in multilateral discussions. He also called for an early conclusion to the stalled Doha Round of world trade talks.

Foreign funds continue to aggressively mop up Indian stocks. Net equity inflow in 2010 now stands at a record $21.42 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 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 IPO of Coal India opens for bidding on 18 October 2010.

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). The Q2 September 2010 earnings season kick-starts next week.

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.

Meanwhile, the finance ministry is reportedly considering a proposal to relax investment norms and allow foreign individuals to directly buy shares of Indian companies. Current guidelines permit only foreign mutual funds to directly invest in the domestic bourses.