Caution may prevail ahead of RBI's policy review

The market may remain cautious ahead of Reserve Bank of India (RBI)'s mid-term policy review today, 16 December 2010. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate a flat opening.



The Reserve Bank of India (RBI) undertakes a mid-quarter policy review today, 16 December 2010 at 12:00 IST. At a quarterly policy review early last month, the central bank had 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, RBI governor D Subbarao had said in a monetary policy statement on 2 November 2010. "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 had added.

Asian stock markets mostly posted muted gains Thursday, 16 December 2010 as investors turned again to concerns about Europe's sovereign debt problems. The key benchmark indices in China, Japan, Singapore and Taiwan rose by between 0.02% to 0.34%. But, the key benchmark indices in South Korea, Indonesia and Hong Kong fell by between 0.03% to 1.52%.

In New York Wednesday, 15 December 2010 early gains in the stock market evaporated after anxiety about Europe's debt crisis overshadowed signs of growth in the U.S. Federal Reserve report showed that U.S. factory output rose for the fifth straight month in November.

The United States requires a "fundamental rethink" of its tax system, and many industrialised countries will have to raise taxes above pre-crisis levels to reduce their deficits, the Organisation of Economic Co-operation and Development (OECD) said on Wednesday.

Ireland's parliament approved a multi-billion euro EU/IMF bailout package on Wednesday in the face of opposition threats to renegotiate the deal to force losses on some senior bondholders in Irish banks. Under the EU/IMF deal, Irish people face years of cutbacks and tax increases in return for fresh capital to shore up the banks, preserving full repayment of their senior bonds -- those first in line to be repaid in the event of any default.

Back home, With consumption on the rise, Corporate India has reportedly paid 15-20 % higher tax for the third quarter of the current financial year. State Bank of India paid advance tax of Rs 1850 crore in Q3 December 2010 compared with Rs 1795 crore in Q3 December 2009. HDFC Bank paid Rs 750 crore vs Rs 400 crore, ICICI Bank paid Rs 450 crore versus Rs 301 crore, The tax outgo of HDFC saw a year-on year (y-o-y ) increase of 25% from Rs 320 crore to Rs 400 crore, Punjab National Bank paid Rs 640 crore versus Rs 618 crore, RIL paid Rs 1100 crore in Q3 December 2010 compared with Rs 830 crore in Q3 December 2009. TCS paid Rs 270 crore in Q3 December 2010 compared with Rs 177 crore in Q3 December 2009.

Hindalco Industries paid Rs 200 crore against Rs 148 crore. Tata Power Company paid Rs 58 crore versus Rs 81 crore. Larsen & Toubro paid Rs 270 crore, unchanged from previous year.

M&M paid Rs 236 crore versus Rs 195 crore, Tata Motors paid Rs 220 crore versus Rs 100 crore and Bajaj Auto paid Rs 370 crore in Q3 December 2010 compared with Rs 310 crore in Q3 December 2009. FMCG major Hindustan Lever paid Rs 225 crore, marking a yo-y increase of Rs 45 crore, an increase of over 25%. Petroleum major HPCL recorded a lower tax outgo, Rs 29 crore against Rs 48 crore, a 39% decline.

The data announced on Friday, 10 December 2010, showed industrial output in October rose a faster-than-expected 10.8% from a year earlier, higher than the previous month's annual growth of 4.4%. Manufacturing output rose an annual 11.3% in October.

Business activity in India's services sector surged to a four-month high in November 2010, driven by robust growth in new orders, a survey showed on 3 December 2010. The manufacturing activity strengthened further in November 2010 and the strong growth momentum is showing up in rising inflation pressures, according to an HSBC survey released on 1 December 2010.

Exports rose an annual 26.8% to $18.9 billion in November 2010, while imports for the month grew 11.2% on the year to $27.8 billion, as the provisional data released byTrade Secretary Rahul Khullar showed on Wednesday.

According to mid-year review, the economy may grow by 9% during the year ending March 2011 (FY 2011). Average headline inflation is seen at 8.98% for the year, it said. The report indicated that the country's fiscal deficit will not be more than 5.5% of its gross domestic product in FY 2011.

The Indian economy grew a robust 8.9% year-on-year in Q2 September 2010, maintaining the same pace of expansion as the previous quarter, boosted by farm output andmanufacturing, government data released Tuesday, 30 November 2010 showed. The manufacturing sector grew an annual 9.8% and farm output grew an annual 4.4% in Q2 September 2010. The government revised upwards the Q1 June 2010 GDP growth to 8.9% from 8.8% earlier.

The wholesale price index (WPI) rose an annual 7.48% in November, in line with forecast, government data showed on Tuesday 14 December 2010. The figure was lower than the annual rise of 8.58% in October. The annual reading for September was upwardly revised to 8.93% from 8.62%.