Market may gain extend gains on last day of 2010

The market may extend last two days' gains on firm Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate a gain of 6.50 points at the opening bell.

Asian stocks rose on Friday, 31 December 2010, on positive economic data in the US, the world's biggest economy. The key benchmark indices in China, Hong Kong, Singapore and Taiwan rose by between 0.08% to 0.77%. Stock markets in Japan and South Korea were closed.



Taiwan's central bank raised its policy rate on Thursday by 12.5 basis points to 1.625%, as expected.

US stocks closed slightly lower on Thursday, 30 December 2010, as better-than-expected economic data wasn't enough to entice buyers to take on much risk in a market sitting on strong gains just before the new year.

Upbeat US data on the jobs market and manufacturing sector on Thursday buttressed the view the economy gained momentum as the year ended, setting the stage for a stronger performance in 2011. New applications for unemployment benefits dropped 34,000 last week to 388,000, the lowest level since July 2008, while factory activity in the Midwest expanded in December at its fastest pace in more than 22 years.

Back home, the Reserve Bank of India on Thursday warned that sudden reversal of overseas portfolio investments that have been flooding in this year could create problems for the economy. "A potentially worrying feature of capital flows to India has been the dominance of portfolio flows which are prone to sudden stops and reversals," the RBI said in a report on assessment of the health of financial sector.

The second financial stability report by the central bank also warned that "at present, stressed liquidity conditions warrant caution and a watchful management in the coming months". With both financial and real sectors still under stress in advanced economies, the report said, "India will have to guard against vulnerabilities arising from risks to global growth and financial stability."

The report said that the other soft spots in the financial sector include widening current account deficit, deteriorating external sector ratios and tight liquidity position, in addition to inflationary pressures. The report also said that recent concerns regarding microfinance institutions (MFIs) warrant closer examination.

Inflation in the food articles group climbed to 14.44% in the week ended 18 December 2010 from 12.13% in the previous week, the latest government data showed. This was the fourth instance of an increase in food inflation after easing for seven consecutive weeks. Inflation in the Primary Articles group jumped to 17.24% in the week under review from 15.35% in the week ended 11 December 2010, the latest data showed. Inflation in the Fuel & Power group inched higher to 11.63% in the week ended 18 December from 10.74% in the week ended 11 December.

The Reserve Bank of India (RBI) announced measures to ease liquidity crunch in the banking system while keeping the key policy rates unchanged at a mid-quarter policy review on 16 December 2010. The RBI said the underlying growth momentum of the Indian economy remains strong. Even as inflation has moderated, it remains significantly above the comfort level of the RBI, the RBI said in a statement. Moreover, risks to inflation remain on the upside, both from domestic demand and higher global commodity prices, the RBI said. There is, therefore, a need for continued vigilance on the inflation front against the build-up of demand side pressures. The RBI had earlier projected 5.5% inflation by March 2011.

A major challenge for the RBI in the recent period has been liquidity management. It is the RBI's endeavor to alleviate the liquidity pressure in a manner consistent with the monetary policy stance of containing inflation and anchoring inflationary expectations, the RBI said.

Meanwhile, the combined advance tax payment by top 100 corporate taxpayers rose 18.7% to Rs 27,531 crore in Q3 December 2010 over Q3 December 2009, indicating better corporate performance in the third quarter this year. Advance tax is paid in four installments in June, September, December and March and is based on taxpayers' projected earnings, thus giving an indication of industry's performance in the months to come.

Foreign funds bought shares worth a massive Rs 2186.44 crore on Thursday, 30 December 2010, as per the provisional data from the stock exchanges. Domestic funds sold shares worth Rs 848.29 crore on that day.

Foreign funds have sold shares worth a net Rs 1172.87 crore this month, as per the data from the stock exchanges. Domestic funds sold shares worth a net Rs 360.12 crore this month, as per data from the stock exchanges.