Market may surge at open on firm Asian stocks

The market may surge in opening trade, tracking firm Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate that the Nifty could gain 44 points at the opening bell.



Asian stock markets rose Wednesday, 6 October 2010, buoyed by growing expectations that the Federal Reserve will take steps to bolster the US economy following a surprise rate cut by the Bank of Japan on Tuesday, 5 October 2010. Investors cheered the Bank of Japan's move Tuesday to slash its key interest rate to virtually zero. The key benchmark indices in Singapore, Indonesia, Japan, South Korea, Taiwan and Hong Kong rose by between 0.64% to 1.29%. Chinese markets were closed for a public holiday.

US stocks rallied on Tuesday, 5 October 2010, after a trade group said that activity in US services companies -- the nation's predominant job-generating sector -- powered ahead in September.

Back home, 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.

Coming back to stocks, foreign funds continue to aggressively mop up Indian shares. As per provisional figures on BSE, foreign institutional investors (FIIs) bought shares worth a net Rs 671.12 crore on Tuesday, 5 October 2010. FII inflow totaled Rs 3760.42 crore in the first three trading days this month.

Net equity inflow in 2010 now stands at a record $20.30 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 the large initial public offer (IPO) of state-run Coal India in mid-October 2010 would soak liquidity from the secondary equity markets. The government plans to raise about Rs 15000 crore to Rs 16000 crore from divestment of 10% stake in Coal India. The IPO is billed as the country's largest issue ever.

The key benchmark indices ended lower in choppy trade on Tuesday, 5 October 2010, as resistance emerged after a three-day rally. The BSE 30-share Sensex fell 68.02 points or 0.33% to 20,407.71.

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. Strong FII inflow has sent the rupee surging against the dollar over the past few weeks. A rising rupee is a bad news for exporters, particularly the labour-intensive segments such as textiles.

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.

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.