Market may open flat to slightly higher; food inflation data eyed

The market may open flat to slightly higher if trading of S&P CNX Nifty futures on the Singapore stock exchange is any indication. It indicates a gain of 5 points at the opening bell. On the macro front, the government will unveil data on some wholesale price indices for the year through 11 December 2010 viz. the food price index, the primary articles index and the fuel price index at about 12:00 IST.



Foreign funds sold shares worth Rs 67.57 crore and domestic funds bought shares worth Rs 98.93 crore on Wednesday, 22 December 2010, as per the provisional data from the stock exchanges. Foreign funds have sold shares worth a net Rs 4133.96 crore so far this month, as per data from the stock exchanges. Domestic funds have bought shares worth a net Rs 1422.94 crore this month so far.

Asian stock markets offered a mixed reaction Thursday, 23 December 2010 to news that the US economy grew faster than expected in Q3 September 2010. Trading was light ahead of Christmas holidays and with Japanese financial markets closed for the emperor's birthday. The key benchmark indices in Hong Kong, Singapore and Taiwan rose by between 0.25% to 0.55%. The key benchmark indices in China, Indonesia and South Korea fell by between 0.12% to 0.37%.

Major US stock indices edged up to two-year highs on Wednesday, 22 December 2010, after a government report showed the country's gross domestic product rose at an annual rate of 2.6% between July and September, higher than its earlier estimate of 2.5%. Sales of previously owned US homes rose in November, offering another sign the economy was ending the year on a positive note.

Closer home, 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.

Oil prices jumped above $90 a barrel on Wednesday, for the first time in 26 months, as a third straight weekly drop in US crude inventories and cold weather on both sides of the Atlantic spurred pre-holiday buying.

A ministerial panel may meet by end-December on diesel prices, Oil Secretary S. Sundareshan said on Tuesday, 21 December 2010. He said a scheduled ministerial panel meeting on Wednesday, 22 December 2010, has now been deferred. "The agenda of the meeting will be finalised a day before the meeting," Sundareshan told reporters. If the price of diesel is hiked, it will offset an expected decline in wholesale price inflation arising from a favourable base effect. Diesel is a key transportation fuel and any hike in diesel prices directly adds to inflationary pressure.

The Reserve Bank of India (RBI), last week, announced measures to ease liquidity crunch in the banking system while keeping the key policy rates unchanged after a mid-quarter policy review. The RBI reduced the statutory liquidity ratio (SLR) of scheduled commercial banks (SCBs) from 25% of net demand and time liabilities (NDTL) to 24%, with effect from 18 December 2010. The central bank also said it will conduct open market operation (OMO) auctions for purchase of government securities for an aggregate amount of Rs 48000 crore in the next one month. These two measures are expected to inject liquidity on an enduring basis of the order of Rs 48000 crore, the RBI said after the mid-quarter policy review.

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 commodityprices, 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 endeavour to alleviate the liquidity pressure in a manner consistent with the monetary policy stance of containing inflation and anchoring inflationary expectations, the RBI statement said.

The RBI said its latest measures will release sizable primary liquidity into the system. These measures will reduce the liquidity deficit in the system close to the comfort zone of the ReserveBank of India , it said. The liquidity easing measures will help stabilise interest rates in the overnight inter-bank market closer to the operative policy rate of the Reserve Bank of India, it said.