Market may extend losses on inflation worries

The market may edge lower for the second straight day on reports oil firms will raise petrol and diesel prices by Rs 2 a litre after a week as crude touched a two-year high of $90 a barrel on Tuesday, 7 December 2010. Higher diesel prices will raise transportation costs, which in turn will stoke inflation. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate a decline of 32.50 points at the opening bell.



Foreign funds sold shares worth a net Rs 522.83 crore and domestic funds dumped shares worth a net Rs 427.22 crore on Tuesday, 7 December 2010, as per provisional data from the stock exchanges. Foreign funds have bought shares worth a net Rs 757.02 crore during the first five trading sessions this month, as per data from the stock exchanges. Domestic funds have sold shares worth a net Rs 1855.66 crore in the first five trading sessions this month.

PSU OMCs may edge higher as oil price hike will boost the finances of state-run firms. But, the news may have negative impact on auto stocks.

Asian stocks were mixed. The key benchmark indices in China, Hong Kong, Singapore, South Korea and Taiwan fell by between 0.01% to 0.64%. But, the key benchmark indices in Japan and Indonesia rose by between 0.51% to 0.69%.

US stocks eked out a small gain on Tuesday , 7 December 2010, as investors' enthusiasm over a tax cut extension deal was short-circuited by rising bond yields and reports regulators were stepping up an insider-trading probe.

Back home, chief economic adviser to the finance ministry Kaushik Basu on Tuesday said the Reserve Bank of India (RBI) may intervene in the foreign exchange markets if the rise in the rupee is sharp and volatile. Large capital flows into India are not a matter of concern, according to a mid-year review of the Indian economy tabled by Finance Minister Pranab Mukherjee in parliament on Tuesday.

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 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.

The recent macro economic data has been strong. 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 Friday, 3 December 2010. The HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to 60.1 in November from 56.2 in October. It was the best showing for the index since July, and the 19th straight month it has remained above the 50 mark that divides growth from contraction.

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 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 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.

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%.

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, 2 December 2010 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.