Market seen ending six-day declining trend on firm global markets

The market is likely to open higher, ending its six-day declining trend, on firm global cues. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate a gain of 12 points at the opening bell. Industrial output data for the month of November 2010 to be released today, 12 January 2011, will be closely watched.



Industrial output soared 10.8% in October 2010. 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.

The government will announce inflation data for the month of December 2010 on Friday, 14 January 2011. The benchmark wholesale-price inflation cooled to near a one-year low of 7.48% in November 2010.

Corporate earnings for Q3 December 2010, which will start trickling this week, will set the direction for the stock 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.

Emerging-market equity funds saw a big jump in inflows for the week ended 5 January 2011, according to fund tracker EPFR Global. For that week, flows to emerging-market equity funds totaled $3.38 billion. Flows into Asia ex-Japan equity funds hit 7-week highs. Korea equity funds had their best week in 8 months despite tension with North Korea.

Asian stocks rose on Wednesday, 12 January 2011, as higher oil and metal prices buoyed commodity shares and a weaker yen boosted the outlook for Japanese export earnings. The key benchmark indices in Singapore, Hong Kong, Taiwan, South Korea, China, Indonesia and Japan rose between 0.08% to 1.74%.

US stocks edged higher on Tuesday, 11 January 2011, as worries over euro-zone debt eased, although a shaky start to the earnings season limited the climb. The Dow Jones Industrial Average advanced 34.43 points, or 0.30%, to 11671.88. The Nasdaq Composite rose 9.03, or 0.33%, to 2716.83. The Standard & Poor's 500 index added 4.73, or 0.37%, to 1274.48

Back home, the market sentiment has been weak off late as data showing a surge in food inflation in late December 2010 has rekindled fears of interest rate hike by the Reserve Bank of India (RBI) at a quarterly policy review on 25 January 2011. Food inflation accelerated to the highest level in more than a year in late December 2010.

The Reserve Bank of India (RBI) governor D Subbarao, last week, said that the status quo maintained by the central bank in the policy rates at the last policy review should be interpreted only as a comma and not a full stop, suggesting further monetary tightening at the upcoming policy review meet on 25 January 2011.

Finance Minister Pranab Mukherjee, last week, asked the state governments to remove supply chain bottlenecks at the earliest in the food sector to bring prices down quickly, even as food inflation accelerated to a one year high. Mukherjee also said a large part of the price rise is due to the widening gap between wholesale and retail prices in fruits, vegetables, milk and meat.

The trade deficit in December 2010 narrowed to $2.6 billion from $8.9 billion in November 2010, the lowest in the last three years, trade secretary Rahul Khullar said on Saturday, 8 January 2011.

Meanwhile as per reports, the proposed Goods and Service Tax (GST) will not be rolled out before April 2012, two years after its slated implementation date, due to continued parliamentary disruption. The implementation of GST has already been postponed twice due to resistance from opposition party-ruled states and fears over state governments losing financial autonomy.

Prime Minister Manmohan Singh said during the weekend that the economy is likely to grow between 9 and 10% from the next financial year that starts from 1 April 2011, after growing 8.5% in the current financial year.

India's exports for December 2010 have registered a growth of 36.4%, the highest in 33 months, raising hopes that the country's total exports for the current fiscal will cross the set target of $200 billion. Exports in December 2010 touched $22.5 billion, while imports contracted by 11.1% to $25.1 billion, leading to a trade deficit of $ 2.6 billion, the lowest in three years. The country's exports in the April to December 2010 period stood at $164.7 billion, registering a growth of 29.5 %.

The government, last week, deferred a decision to free the prices of urea for now and bringing it under the Nutrient Based Subsidy (NBS) policy regime even as a panel of secretaries has been asked to work out a viable model for decontrolling the prices.

Union petroleum and natural gas minister Murli Deora, last week, said his ministry was not in favour of raising diesel and cooking gas prices despite a spurt in global prices of crude oil.

Growth in India's service sector eased in December 2010 from a four-month high the previous month, reflecting a slightly slower expansion in new business, a recent survey showed. The HSBC Markit Business Activity Index, based on a survey of around 400 firms, fell to 57.7 in December 2010 from 60.1 in November 2010 -- its strongest reading since July 2010. Both input and output prices rose in December 2010, with the growth in input costs accelerating to its highest levels since July 2010.

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 early this week. 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 key benchmark indices edged lower in a choppy trade on Tuesday, 11 January 2011, to hit six-week closing lows. The BSE 30-share Sensex was down 27.78 points or 0.14% to 19,196.34, its lowest closing level since 26 November 2010. The S&P CNX Nifty was down 8.75 points or 0.15% at 5,754.10, its lowest closing level since 26 November 2010.

As per provisional data, foreign institutional investors (FIIs) sold shares worth a net Rs 1162.57 crore and domestic institutional investors bought shares worth Rs 1064.18 crore on Tuesday, 11 January 2011.