Market seen halting five-day decline

The market is likely to open flat to slightly higher if trading of S&P CNX Nifty futures on the Singapore stock exchange is any indication. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate a gain of 13 points at the opening bell. However, fears of hike in interest rates, recent selling by foreign funds and rising worries over Portugal's economic health may dampen sentiment.



As per provisional data, foreign institutional investors (FIIs) sold shares worth a net Rs 1138.78 crore and domestic institutional investors bought shares worth Rs 1018.54 crore on Monday, 10 January 2011.

The government will announce industrial output data for the month of November on Wednesday, 12 January 2011. 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.

Most Asian markets edged lower on Tuesday, 11 January 2011, as Japanese exporters dropped after the yen rose against the dollar and amid concern Europe's sovereign debt crisis will worsen. The key benchmark indices in Singapore, Japan, China, South Korea and Hong Kong were down between 0.03% to 0.29%. But, the key benchmark indices in Taiwan and Indonesia rose 0.98% and 1.24% respectively.

US shares ended on a mixed note in a volatile trading session on Monday, 10 January 2011, amid renewed worries about eurozone debt and concerns Portugal may be the next country to need an international bailout. The Dow Jones Industrial Average fell 37.31 points or 0.32% to 11,637.45. The S&P 500 index dipped 1.75 points or 0.14% to 1269.75 and the Nasdaq Composite index rose 4.63 points or 0.17% to 2707.80.

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 over the weekend 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.

Sovereign debt jitters returned to the eurozone over the weekend amid reports that Portugal was under pressure from Germany to become the third member of the single currency to seek a bailout. A key test will come on Wednesday, 12 January 2011, when Portugal is due to raise up to Euro 1.25 billion in an auction of its debt.

A bailout would see Portugal join Ireland, which was rescued in November 2010 as it struggled to cover the debts of its banks, and Greece, which sought help in May 2010 after its deficit spun out of control. A Portuguese aid package could total between Euro 50 and Euro 100 billion. But, the Portuguese government hurried to deny the reports, with German authorities also claiming there was no truth to them.

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.

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.

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 tumbled to six-week closing lows as a sell-off accelerated in the second half of the trading session on Monday, 10 January 2011, on heightened fears of a rate hike by the central bank to cool inflation.

The BSE 30-share Sensex was down 467.69 points or 2.38% to 19,224.12, its lowest closing level since 26 November 2010. The S&P CNX Nifty was down 141.75 points or 2.4% at 5,762.85, its lowest closing level since 26 November 2010.

From a seven-week closing high of 20,561.05 on 3 January 2011, the Sensex has lost 1,336.93 points or 6.5%, in five trading sessions.