Market may open flat to slightly lower; HCL Tech in focus

The market may open flat to slightly lower tracking weak Asian stocks. Trading of S&P CNX Nifty on the Singapore stock exchange indicates a gain of 4.50 points at the opening bell.

FIIs sold shares worth a net Rs 177.75 crore on Tuesday, 26 July 2011, as per provisional data from the stock exchanges. Domestic institutional investors (DIIs) bought shares worth Rs 31.49 crore on that day. Key benchmark indices tumbled on Tuesday, 26 July 2011 after a higher-than-expected hike of 50 basis points by the Reserve Bank of India (RBI) in its key lending rate at a policy review on Tuesday. The BSE Sensex fell 353.07 points or 1.87% to settle at 18,518.22,
hits lowest closing level since 21 July 2011.



HCL Tech's consolidated net profit rose better than expected 9% to Rs 510 crore on 3.9% rise in total income to Rs 4300 crore in Q4 June 2011 over Q3 March 2011. Consolidated net profit as per US accounting standards was seen rising 7.52% to Rs 503.44 crore on 5% growth in revenue to Rs 4345.08 crore in Q4 June 2011 over Q3 March 2011 as per average estimate of 5 brokerages.

Among prominent results, UltraTech Cement, GAIL (India), Bank of Baroda, Infrastructure Development Finance Company (IDFC), Oil India and Lupin unveil results today, 27 July 2011.

The market may remain volatile in the near term as traders roll over positions in the derivatives segment from the near-month July 2011 series to August 2011 series ahead of the expiry of July 2011 derivatives contracts on Thursday, 28 July 2011.

Reserve Bank of India (RBI) raised key lending rates by 50 basis points at a policy review on Tuesday, 26 July 2011.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 current trends in money supply (M3) and credit growth remain above the indicative trajectory of the Reserve Bank of India, RBI said. Keeping in view the evolving growth-inflation dynamics, the indicative projection of M3 growth for 2011-12 has been revised downwards from 16%, as set out in the May 3 Policy Statement, to 15.5%. Non-food bank credit growth projection has also been revised downwards from 19% to 18%, RBI said.

Notwithstanding some moderation, global commodity prices, especially that of oil, continue to weigh on both domestic growth and inflation, RBI said. The future path of crude oil prices is uncertain. Should the recovery in advanced economies pick up, there may be upward pressure on prices, the RBI said. On the other hand, should the recovery stall, the easy liquidity conditions will continue to prevail leading to continued speculative positions which may prevent prices from softening, RBI said.

RBI said there are risks to the food inflation outlook. First, although the monsoon has been close to normal so far, deficient rainfall in August coupled with higher minimum support prices (MSP) could result in an upward movement in cereals and pulses price inflation. Second, inadequate supply response could keep price inflation of protein-rich items such as egg, meat, fish, milk and pulses high.

The Central Government has budgeted a fiscal deficit of 4.6% of GDP for 2011-12. Subsequent developments have made the achievement of this target much more of a challenge, RBI said. On the expenditure side, the subsidy burden will, in all likelihood, overshoot the budgeted amount in 2011-12 significantly, despite the recent revision in petroleum product prices. On the revenue side, while the tax cuts announced in June 2011, as part of the upward price adjustment of petroleum products, will primarily help in bringing down the magnitude of under-recoveries of oil marketing companies (OMCs), the revenue loss to the Central Government from such tax cuts (about 0.3% of GDP) will impact both the fiscal and revenue deficits.

The large fiscal deficit has been a key source of demand pressures, RBI said. Fiscal consolidation is, therefore, critical to managing inflation. While meeting quantitative targets, the Government also needs to focus on the quality of expenditure to sustain the fiscal consolidation process, which, in turn, will help contain aggregate demand and raise potential output, the RBI said.

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. 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%."

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. A hike in transportation costs will add to cost pressure of India Inc. As per reports, freight rates have gone up by 8% to 9% on all routes across India following the recent hike in diesel prices.

State-run oil exploration giant ONGC, FMCG giant Hindustan Unilever, Cigarette major ITC, Sun Pharma, cement majors--ACC and Ambuja Cements, Jindal Steel & Power, state-run Punjab National Bank, and GSFC unveil results on 28 July 2011. 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.

Asian shares retreat as the U.S. remains without a deal to prevent default before an Aug. 2 deadline and amid some unexpected economic data from the region. The key benchmark indices in China, Hong Kong, Japan, Singapore and South Korea fell by between 0.01% to 0.56%. The key benchmark indices in Indonesia and Taiwan rose by between 0.19% to 0.37%.

U.S. stocks closed near session lows Tuesday as the extended standoff in Washington over hiking the debt ceiling went unresolved. Republicans and Democrats labored to round up votes for dual debt proposals to avoid a potential default.