Market may open flat to slightly higher

The key benchmark indices may open flat to slightly higher as Asian Markets edged higher shrugging off China's interest rate hike over the weekend. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate a flat opening.



Expiry of the near-month December 2010 futures & options (F&O) contracts may cause volatility this week, the last trading week of calendar 2010. The near-month December 2010 derivatives contracts expire on Thursday, 30 December 2010.

Asian Markets edged higher on Monday even after China's central bank raised interest rates over the weekend in a bid to rein in soaring inflation. China's key stock index Shanghai Composite jumped 1.31% on Monday after the People's Bank of China announced a benchmark interest rate rise over the weekend, the second such increase in two months. The central bank raised official lending and deposit rates by 25 basis points on Christmas Day.

In other Asian markets, the key benchmark indices in Indonesia, Japan, Singapore, South Korea and Taiwan rose by between 0.01% to 0.59%.

China's inflation jumped to 5.1% in November -- a 28-month high -- despite a crackdown on speculation and repeated moves to curb a flood of money circulating in the economy from massive stimulus spending and bank lending.

Back home, the food price index rose 12.13% while the fuel price index climbed 10.74% in the year to 11 December 2010, the latest government data showed. In the prior week, annual food and fuel inflation stood at 9.46% and 10.67% respectively. The primary articles price index was up 15.35% in the latest week compared with an annual rise of 13.25% a week earlier.

The Reserve Bank of India (RBI), in its recent monetary policy review 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 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 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 Reserve Bank 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.

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.

As per provisional data on NSE, foreign funds bought shares worth Rs 14.82 crore and domestic funds sold shares worth Rs 296.56 crore on Friday, 24 December 2010.