Market may open lower on weak Asian stocks; L&T in focus

Market may open lower extending Tuesday (4 January 2011)'s decline, tracking weak Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate a fall of 11.50 points at the opening bell.



As per provisional figures, foreign funds bought shares worth Rs 717.76 crore and domestic funds sold shares worth Rs 491.57 crore on Tuesday, 4 January 2011.

Foreign funds have bought shares worth a net Rs 1058.74 crore in the first two trading sessions of 2011, as per data from the stock exchanges. Foreign funds sold shares worth a net Rs 641.55 crore in December 2010, data from the stock exchanges showed.

Domestic funds have sold shares worth a net Rs 615.58 crore in the first two trading sessions of 2011, as per data from the stock exchanges. Domestic funds sold shares worth a net Rs 481.90 crore in December 2010, as per the data from the stock exchanges.

Emerging-market equity funds drew more inflows in the week ended 29 December 2010, attracting a record level of money in 2010, according to fund tracker EPFR Global. Emerging-market equity funds tracked by EPFR Global took in a net $1.11 billion for the week ended 29 December 2010. A record-setting $92 billion was put in emerging market equity funds in 2010.

Larsen & Toubro (L&T) Chairman AM Naik has reportedly kicked off a restructuring plan that will divide the Rs 37000-crore engineering and infrastructure behemoth into nine virtual companies. Each of these, being called `independent companies', will have a full-fledged CEO, CFO and HR head, and will manage its own profit and loss account. Some of these independent companies could be spun out of L&T and listed on the bourses before 2015.

Asian shares edge lower on Wednesday, 5 January 2011, as investors reigned in the solid New Year momentum that fueled markets the previous day. The key benchmark indices in China, Indonesia, Japan, Singapore, South Korea and Taiwan fell by between 0.04% to 0.7%. Hong Kong's Hang Seng was flat.

A rally that pushed US stocks up nearly 7% in December 2010 took a pause on Tuesday, 4 January 2011, with traders shrugging off a pickup in factory orders and a sharp rise in monthly sales from General Motors and Ford.

Back home, corporate earnings for Q3 December 2010, which will start trickling in from the second week of January 2011, will set the direction for the market in the near term. Analysts see corporate profit margins to be under pressure in the coming months due to higher commodity prices, rising cost of debt, surging wages and increased competitive intensity across sectors. IT bellwether Infosys kickstarts the earnings reporting season on 13 January 2011.

The data on HSBC Markit Business Activity Index for December 2010 is likely to be announced this week. The HSBC Markit Business Activity Index, indicating the performance of the services sector, had risen 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.

Exports in November 2010 rose an annual 26.5% to $18.9 billion, while imports for the month grew 11.2% on the year to $27.8 billion, government data released on Monday showed. India's trade deficit in November narrowed to $8.9 billion compared with $9.7 billion in October.

India's manufacturing activity continued to expand in December 2010, although the momentum from the prior month eased because of capacity constraints and a slowdown in new orders, a survey by HSBC showed Monday. The monthly purchasing managers' index eased to 56.7 from November's reading of 58.4, though it stayed well ahead of the threshold of 50, which separates expansion from contraction. "The PMI numbers show that the economy remains in high gear, but that this is becoming increasingly difficult to reconcile with a comfortable level of inflation," HSBC economists wrote in a statement. India's central bank, they wrote, may raise interest rates sooner rather than later to curb price increases

The output of six key infrastructure sectors grew 2.3% in November 2010 from a year ago, the slowest pace in the last 21 months, raising the prospects of a drop in industrial growth for the month. The six core industries -- crude oil, petroleum refining, coal, electricity, cement and finished steel, have a combined weight of 26.7% in the index of industrial production and are considered an advance indicator of industrial activity. These sectors had grown an upwardly revised 8.6% in October 2010.

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, last week, warned that a 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.