Market may edge lower on political worries, high oil prices

The market may edge lower on political uncertainty after Dravida Munnettra Kazhagam (DMK), a key ally of the Congress-led UPA government at the Centre, said on Saturday, 5 March 2011, that it is pulling out of the government. A rally in crude oil prices and weak Asian stocks will also weigh on investor sentiment. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 68.50 points at the opening bell.



As per provisional figures, foreign funds bought shares worth Rs 585.52 crore and domestic funds sold shares worth Rs 229.78 crore on Friday, 4 March 2011. The market had surged in the week ended Friday, 4 March 2011, after the Finance Minister refrained from raising excise duty in the Union Budget 2011-12 unveiled on Monday, 28 February 2011.

The Congress party moved to shore up its ruling coalition on Sunday, 6 March 2011, after DMK said said six ministers of the party will formally quit the cabinet on Monday, 7 March 2011, the latest setback for a government beset by corruption scandals. But, the government is not in immediate threat of collapse because the DMK has said that it will continue to offer conditional support even after its six ministers leave because of a seat-sharing row over assembly elections in Tamil Nadu. Ties between the Congress and the DMK have been strained since a massive telecoms licensing scandal involving a minister of the DMK surfaced a few months back.

High crude oil prices remain a cause for concern for India which imports majority of its crude oil requirements. US crude futures were up $ 1.31 or 1.25% at $105.73 a barrel. Oil futures climbed as fighting in Libya raged on, adding to concern popular unrest will spread to other, nearby oil-producing states. Over the weekend, heavy fighting continued in Libya, with pro-government forces battling protesters for control of key towns and ports.

Oil prices have seen big gains recently as unrest gripped the Middle East and North Africa, spreading from Tunisia to the surrounding areas, including Libya. There are concerns that a pro-democracy movement could spread to large-scale oil producer Saudi Arabia. Closer home, the Reserve Bank of India is expected to raise rates by 25 basis points at its mid-quarter policy review on 17 March 2011 as headline inflation remains high.

Asian stocks fell on Monday on worries further gains in oil prices may temper risk-taking and start eating into corporate profitability. The key benchmark indices in Hong Kong, Indonesia, Japan, South Korea and Taiwan fell by between 0.01% to 1.33%. The key benchmark indices in China and Singapore rose by between 0.28% to 1.23%.

Wall Street erased most of its weekly gains on Friday as fears of more geopolitical turmoil and higher oil prices threaten global economic recovery. The Labor Department said payrolls rose by 192,000 in February, and the unemployment rate unexpectedly dipped to 8.9% from 9%.

Back home, the food price index rose 10.39% and the fuel price index climbed 12.56% in the year to 19 February 2011, government data on Thursday showed. In the previous week, annual food and fuel inflation stood at 11.49% and 12.14%. The primary articles price index was up 14.85% compared with an annual rise of 15.77% a week earlier.

India's services sector expanded in February at its fastest pace in seven months, helped by a steady expansion of new business, even as input price pressures intensified, a survey showed on Thursday. The HSBC Markit Business Activity Index based on a survey of around 400 companies, rose to 60.2 in February 2011 from 58.1 in January 2011, staying above the 50 mark that separates growth from contraction for the 22nd consecutive month. The PMI's new business sub-index, at 59.6, recorded its strongest growth since June as market conditions improved, and developed economies recovered. The degree of positive sentiment in the business expectations sub-index was the strongest in 16 months.

The manufacturing sector expanded at its fastest clip in three months in February 2011 as more new orders poured in, but input prices rose at a record pace, a survey showed on Tuesday, 1 March 2011. The HSBC Markit Purchasing Managers' Index, based on a survey of around 500 Indian companies, rose to 57.9 in February from 56.8 in January. This was the 23rd consecutive month the key index of manufacturing in Asia's third largest economy has been above the 50 mark that divides growth from contraction.