Market seen opening firm on positive global cues

The market may edge higher on positive global cues. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate that the Nifty could advance 36 points at the opening bell.



The Q2 September 2010 corporate results announced have been encouraging. The combined net profit of a total of 1736 firms surged 40.40% to Rs 78627 crore on 18.30% growth in sales to Rs 561233 crore in Q2 September 2010 over Q2 September 2009.

Asian stocks rose for a third day on Wednesday after Westpac Banking Corp's earnings surged, commodity prices rose and Deutsche Bank AG raised its estimate for South Korea's Kospi index. The key benchmark indices in Singapore, Japan, Hong Kong, Indonesia, Taiwan and South Korea rose between 0.06% to 1.68%. But, China's Shanghai Composite slipped 0.26%.

US stocks climbed broadly Tuesday as investors awaited the results of US midterm elections expected to usher in more Republicans, and a two-day Federal Reserve meeting expected to yield more economic stimulus. The Dow Jones Industrial Average climbed 64.10 points, or 0.58%, to 11188.72. The Nasdaq Composite rose 28.68, or 1.14%, to 2533.52 and the Standard & Poor's 500-stock index climbed 9.19, or 0.78%, to 1193.57.

The Federal Reserve's policy-setting committee began a two-day meeting. A new round of bond-buying expected to be announced on Wednesday, dubbed "QE2" by Wall Street, would be aimed at lowering long-term interest rates to give the economy a lift.

Back home, the Reserve Bank of India (RBI) at its second quarterly monetary policy review on Tuesday, 2 November 2010, hiked its lending and borrowing rates by a quarter point each, as expected, to tackle inflationary pressures. The RBI raised its repurchase or repo rate (at which it lends money to bank) to 6.25%, while increasing the reverse repurchase or reverse repo rate to 5.25%. It left the cash reserve ratio - the amount of deposits that commercial banks are required to keep with the RBI -- unchanged at 6%. Speaking at a post-policy release press conference on Tuesday, the RBI Governor D Subbarao said that some controls on debt flows will be maintained.

The central ban signaled a pause in its policy tightening drive that began in October 2009. Based purely on current growth and inflation trends, the Reserve Bank of India (RBI) believes that the likelihood of further rate actions in the immediate future is relatively low, Subbarao said in a statement. "However, in an uncertain world, we need to be prepared to respond appropriately to shocks that may emanate from either the global or domestic environment," he added.

The central bank said inflation is expected to moderate from the present elevated level, reflecting in parts, some easing of supply constraints and concerted policy action. The RBI said that under a new series of the wholesale price index, its projection now stands at 5.5% at end March 2011, which is equivalent to 6% under the old series. In July 2010, the RBI forecast that wholesale price index inflation was likely to ease to 6% by March 2011, under an old method of calculating price increases. The RBI also retained its gross domestic product forecast for the current financial year, ending in March 2011, at 8.5%

The RBI tightened provisioning norms on home loans. At present, there is no regulatory ceiling on the loan to value (LTV) ratio in respect of banks' housing loan exposures. In order to prevent excessive leveraging, RBI has proposed that the LTV ratio in respect of housing loans hereafter should not exceed 80%.

The RBI said it will continue to closely monitor both global and domestic macroeconomic conditions. "We will take action as warranted with a view to mitigating any potentially disruptive effects of lumpy and volatile capital flows and sharp movements in domestic liquidity conditions, consistent with the broad objectives of price and output stability", the policy statement said.

The manufacturing sector expanded in October 2010 at a much faster pace than in September 2010, supported by strong output and a sharp rise in new business, a purchasing managers' index (PMI) showed on Monday, 1 November 2010. The HSBC Markit PMI, based on a survey of 500 Indian companies, rose to 57.2 in October 2010 from 55.1 in September 2010 and 57.2 in August 2010. New orders climbed for the 19th month in a row and at a faster rate than in September 2010.

The report said input prices for manufacturers increased substantially in October 2010 and at their fastest pace in five months, while output prices rose modestly. "Price pressures, however, are still too strong for comfort, possibly prompting the central bank to hike again before the end of the year," Frederic Neumann, co-head of Asian Economics Research at HSBC, said in a statement

The RBI on Sunday, 31 October 2010, said it was extending the special liquidity measures unveiled last week up to 4 November 2010. The RBI also allowed lenders to temporarily lower holdings of debt below regulatory requirements to raise cash.

Finance Minister Pranab Mukherjee, last week, said the government has no plan to put any cap on flow of funds from foreign institutional investors (FIIs), which have pumped in nearly $25 billion so far this year. He said a sharp increase in inflow of funds from FIIs has provided cushion in controlling current account deficit. "I am confident with the flow of FIIs and foreign exchange availability, I will be able to contain current account deficit at around 3% of the GDP," Mukherjee said. The Finance Minister admitted that inflows of foreign funds have put pressure on the Indian currency.

India's economy is seen growing by 8.5% to 9.7% in the 2010/11 fiscal year and monetary tightening should ensure the pace of recovery is not hit, the finance ministry said in a report released on 26 October 2010.

While global liquidity remains ample, a section of the market is worried 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 80000 crore from equity and debt issue over the next three to six months. State-run Power Grid Corp, Steel Authority of India and Indian Oil Corp are some of the companies that are planning large share sales in coming months.

But, the liquidity in secondary equity markets in the immediate short term could rise as Coal India has started returning the amount of excess subscriptions received towards its initial public offering. The IPO of Coal India IPO was subscribed more than 15 times. Shares of Coal India will debut on the secondary equity markets on Thursday, 4 November 2010.

Meanwhile, flows pouring into emerging market funds slowed considerably in the fourth week of October 2010. EPFR Global-tracked emerging markets equity and bond funds took in $2.68 billion and $710 million, respectively, in the week ended 27 October 2010, around half the previous week's totals. Last week, global emerging markets equity funds took in $3.76 billion, topping the record of $3.74 billion set in the first week of October 2010, which had been the highest total since EPFR started compiling weekly flow data.

Brazil equity funds posted another solid week of inflows despite that market's recent efforts to control capital inflows via higher taxes, EPFR said. The Brazilian government recently raised the tax on foreign purchases of fixed income to 6% from 4%. It also raised the tax on margin deposits on futures markets to 6% from 0.38%.

Foreign funds have made heavy purchases of Indian stocks this year. Net equity inflows in 2010 now stands at a record $26.25 billion, above last year's $17.45 billion.

Foreign funds bought equities worth a net Rs 460.88 crore and domestic institutional investors sold shares worth Rs 202.24 crore on Tuesday, 2 November 2010, as per provisional data from the stock exchanges.

The key benchmark indices were little changed on Tuesday, 2 November 2010, after undergoing intraday volatility. The BSE 30-share Sensex was down 9.94 points or 0.05% to 20,345.69 and the S&P CNX Nifty was up 1.45 points or 0.02% to 6,119.