Market may extend gains

Data showing resumption of buying by foreign funds and firm Asian stocks may help Indian stocks extend this week's strong gains. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate a gain of 21.50 points at the opening bell.

Foreign funds bought shares worth a net Rs 386.12 crore on Thursday, 2 December 2010, as per the provisional data from the stock exchanges. The inflow in the first two trading days this month reached Rs 878 crore. Domestic funds sold shares worth a net Rs 225.04 crore on Thursday, as per the provisional figures.



The market has staged a strong comeback after a recent steep slide. From a 2-1/2-month closing low of 19,136.61 on 26 November 2010, the Sensex jumped 856.09 points or 4.47% in four trading sessions to settle at 19,992.70 on Thursday, 2 December 2010.

Asian stocks extended recent gains as US stocks rose on Thursday on the back of improved economic data. The key benchmark indices in Hong Kong, Japan, Indonesia, Malaysia, Singapore, South Korea and Taiwan were up by between 0.06% to 0.77%.

The latest data showed a gauge of US jobless benefits hit a new two-year low last week and pending home sales in the world's biggest economy unexpectedly rose in October 2010.

Closer home, the Securities and Exchange Board of India (Sebi) on Thursday barred founders and related entities of four firms from trading on the stock exchanges as these firms had indulged in "fraudulent and unfair" trade practices. The founders of Murli Industries , Ackruti City Ltd , Welspun Corp and Brushman India have been directed not to deal in any securities of their group companies, it said. Sebi also prohibited Sanjay Dangi and his group entities from dealing in any securities on charges of manipulation of share prices.

On the macro front, the latest data showed a continuation of the recent trend of easing of food inflation. The food price index rose 8.60% while the fuel price index climbed 9.99% in the year to 20 November 2010, government data on Thursday showed. In the prior week, annual food and fuel inflation stood at 10.15% and 10.57% respectively. The primary articles price index was up 12.72% in the latest week compared with an annual rise of 13.38% a week earlier.

India's merchandise exports rose 21.3% to $18 billion in October 2010 over October 2009, boosting hopes that the country may be able to reach the $200 billion target fixed for the current fiscal. Imports during the period grew by 6.8% to $ 27.68 billion, leaving a trade deficit of $9.72 billion, data released on 1 December 2010, showed.

India's 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 Wednesday, 1 December 2010. The HSBC Manufacturing Purchasing Managers' Index rose to 58.4 in November from 57.2 in October, the survey said. The data on Business Activity Index, indicating the performance of the services sector, is due for release in the coming days.

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 and manufacturing, 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.

Finance Minister Pranab Mukherjee on Tuesday said GDP growth would be between 8.5% to 8.75% in the current fiscal that ends in March 2011 (FY 2011). Chairman of the Prime Minister's Economic Advisory Council C. Rangarajan said the economy is expected to grow 9% in the year to March 2012 (FY 2012). Rangarajan also said the government may reassess FY 2011 growth expectations and that it was "not impossible" to reach 9% growth in the financial year.

The output of key infrastructure industries surged by a robust 7% in October 2010, against a 3.9% growth recorded in the same month last year, helped by a strong showing by the electricity, crude oil and the finished steel sectors. The latest data for the six core sector showed a sharp rebound from the output in September 2010, when growth in these sectors had slipped to 2.7%.

A bribe-for-loan scandal spooked the banking sector and the stock market recently. Chiefs of some of the top rung public sector banks and financial institutions were arrested by the Central Bureau of Investigation (CBI) on 24 November 2010, for allegedly sanctioning loans in return for bribes. The Securities & Exchange Board of India (Sebi) is reportedly examining the possibility of insider trading in shares of at least nine companies. The Sebi has joined the CBI to probe the possibility of insider trading in shares of these companies, named by the investigator as involved in the loan scandal, recent reports suggest.

The CBI has reportedly sent notices to 21 medium-to-large sized Indian companies regarding the ongoing probe into a financial bribery scandal. The cases are limited to individuals and unlikely to create a large fallout, a news agency report said, late last week, citing an unnamed senior CBI official. The CBI is not currently considering widening its probe into bribery over loans to corporates, the report added.

Finance Minister Pranab Mukherjee, last week, asked all banks, financial institutions and insurance firms to look into their exposures to firms named by the Central Bureau of Investigation in a loans bribery scandal. A ministry statement quoted Pranab Mukherjee as calling on regulatory and other institutions to further improve safeguards.

The next major trigger for the equity market is the advance tax payment of corporates for the third installment, which falls due on 15 December 2010. The advance tax figures will provide a cue on Q3 December 2010 corporate earnings.

But, year-end profit taking may cap upside on the domestic bourses in the near term. Funds based in US and Europe follow calendar year as their accounting year.