Market may extend losses; food inflation data eyed

The market may extend losses for the third straight day on weak Asian stocks. The worries that higher interest rates will hurt corporate profit has hurt sentiment. Trading of S&P CNX Nifty on the Singapore stock exchange indicates a fall of 62.50 points at the opening bell.

FIIs sold shares worth a net Rs 12.93 crore on Wednesday, 27 July 2011, as per provisional data from the stock exchanges. Domestic institutional investors (DIIs) sold shares worth Rs 0.19 crore on that day. Fears that higher interest rates will hurt corporate profit growth pulled the market lower for the second straight day on Wednesday, 27 July 2011. The BSE Sensex fell 85.97 points or 0.46% to 18,432.25, its lowest closing level since 12 July 2011.

The government will today, 28 July 2011, unveil data on some wholesale price indices viz. the food price index, the primary articles index and the fuel price index for the year through 16 July 2011.

Cigarette major ITC seen reporting good Q1 results today, 28 July 2011. The core cigarette business is expected to do well on the back of higher volumes and stability in retail prices as the government refrained from raising excise duty on cigarettes in the Union Budget 2011-2012 in February this year. The company's other businesses viz. hotels, agri-business and paper product are also expected to do well. ITC's net profit is seen rising 19.68% to Rs 1281 crore on 16% growth in net sales to Rs 5587.57 crore in Q1 June 2011 over Q1 June 2010, according to average estimate of eight brokerages.

FMCG giant Hindustan Unilever (HUL) is seen reporting a decent revenue growth driven by new product launches and aggressive product promotions. Increase in input cost will likely be offset by ad spend savings. The company unveils Q1 result today.

Among prominent firms, State-run oil exploration giant ONGC, Sun Pharma, cement majors--ACC and Ambuja Cements, Jindal Steel & Power, state-run Punjab National Bank, and GSFC unveil results today, 28 July 2011.

Telecom firms will be in focus after reports two leading mobile operators, Vodafone Essar and Idea Cellular, to have increased pre-paid tariffs by up to 20%, in line with the recent Bharti Airtel move. Last week, Bharti Airtel, the largest telecom operator by subscriber base, had raised rates for pre-paid users by 20% for certain packages across several circles.

As the crucial corporate earnings season gathers steam, investors will closely watch the post-Q1 June 2011 result management commentary to gauge the future earnings outlook at a time when Indian firms are witnessing cost pressures amid rising interest rates and staff costs.

ICICI Bank, Power Finance Corporation, Bhushan Steel, Idea Cellular and TVS Motor unveil Q1 results on 29 July 2011. Sun TV announces Q1 results on 1 August 2011. Power Grid Corporation unveils Q1 results on 2 August 2011.

Bharti Airtel and United Spirits unveil Q1 results on 3 August 2011. Adani Power, Mundra Port And Special Economic Zone and Indian Hotels announce Q1 results on 4 August 2011. IL&FS Transportation Networks announces Q1 results on 5 August 2011. M&M announces Q1 results on 8 August 2011. ABB, Mahindra Satyam and GMR Infrastructure announce quarterly results on 9 August 2011. Tata Power unveils Q1 results on 10 August 2011. Tata Motors unveils Q1 results on 11 August 2011. Hindalco and Coal India unveil Q1 results on 12 August 2011. Aditya Birla Nuvo unveils Q1 results on 13 August 2011.

The Reserve Bank of India (RBI) raised key lending rates by 50 basis points at a policy review on Tuesday, 26 July 2011, to tame high inflation. The RBI has raised its end March 2012 inflation target to 7% as against the previous estimate of 6%, saying inflation has been higher than its expectations. It kept its economic growth forecast of 8% for this fiscal year. The RBI revised downwards non-food bank credit growth projection to 18% for the year ending March 2012 (FY 2012) from 19% earlier.

Although the impact of past monetary policy actions is still getting transmitted, considering the overall growth and inflation scenario, there is a need to persevere with the anti-inflationary stance, the RBI said. Going forward, the monetary policy stance will depend on the evolving inflation trajectory, which, in turn, will be determined by trends in domestic growth and global commodity prices, the RBI said. A change in stance will be motivated by signs of a sustainable downturn in inflation, it added.

The uncertain global macro-economic environment poses a challenge for the domestic economy from the perspective of financing the current account deficit, RBI said. In this context, the composition of capital flows remains a concern. In recent months, some shift in composition of capital flows towards foreign direct investment (FDI) has been observed. This trend needs to be reinforced through policy actions to improve the quality of financing of the current account deficit, RBI said.

Reacting to the RBI's monetary policy review, Devendra Kumar Pant, Director, Fitch Ratings said, "RBI's monetary policy was announced in the backdrop of sticky inflation, growth moderation and uncertain global economic conditions. The hike in repo rate by 50 bps is mainly to control inflation, especially non-food manufactured inflation, which is going out of hand. This will certainly have its impact on economic growth, which is likely to be below 8%."

Finance Minister Pranab Mukherjee on Wednesday, 27 July 2011, said food inflation at 8% around the current level, is not acceptable. He added that the government would take steps to support the RBI's battle against stubbornly high inflation, which is likely to see further rate rises. "I don't think we have reached the end of tunnel," Mukherjee said referring to the RBI's rate tightening cycle. "Appropriate measures will be taken," Mukherjee said, referring to government support of the central bank's policy action, without giving specifics.

Mukherjee said the government would keep its spending in check to meet its deficit target but did not give details. "We are looking at ways to compress expenditure. There is revenue buoyancy and together I think they will help us in reaching fiscal deficit target," he said.

Monsoon rain in India this year is likely to be close to normal, and there is no change in the rainfall forecast of 95% of the 50-year average, the country's weather chief said on Tuesday, 26 July 2011, giving some cheer to policy makers who are battling high inflation. The distribution of rains is very good, and it is one of the best monsoons in recent years, Ajit Tyagi told reporters on the sidelines of a conference on Tuesday. He said that the monsoon rain is lagging only in the states of Gujarat, Haryana, Assam and some parts of Andhra Pradesh.

Gujarat is the country's largest cotton and groundnut producer, while Assam is a key tea-growing region. Andhra Pradesh is one of India's leading rice producers. The June-September monsoon is crucial for summer-sown crops such as rice, sugarcane, pulses, cotton and oilseeds. It holds the key to food prices and farm incomes. Tyagi said the slight shortfall in rain won't have any significant impact on crop output. Monsoon rains have now been around 2% below normal so far.

Meanwhile. Indian and Pakistani foreign ministers reportedly hailed a "new era" in ties between the nuclear-armed rivals on Wednesday and agreed to fight terrorism and boost trade and travel, a step forward in reducing tension in the world's most dangerous region.

Asia markets trade with sharp losses, as the August 2 deadline to raise the U.S. debt ceiling draws closer with little sign of agreement among Washington lawmakers. The key benchmark indices in, Singapore, Indonesia, China Japan, Hong Kong and Taiwan fell by between 0.63% to 1.3%.

Japanese retail sales rose 1.1% in June from a year earlier, according to government data released Thursday, rebounding from a 1.3% drop in May.

Wall Street suffered its worst day in eight weeks on Wednesday, hit by weak earnings, lackluster economic data and no movement in Washington talks as the deadline for a U.S. default looms. The US is moving closer to an August 2 deadline, after which the Treasury says it will no longer be able to meet debt obligations. New orders for long-lasting U.S. manufactured goods fell unexpectedly in June, and a gauge of business spending plans slipped. Also, the Federal Reserve's "Beige Book" report showed the pace of the recovery slowing in most districts surveyed.