Market may open flat to slightly lower; food inflation data eyed

The market may open flat to slightly lower tracking weak Asian stocks after US stocks tanked more than 4% on Wednesday on worries that Europe's debt crisis could engulf French banks and spill onto the world financial sector. Trading of S&P CNX Nifty on the Singapore stock exchange indicates a fall of 13 points at the opening bell. The government will today, 11 August 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 30 July 2011.



FIIs bought shares worth a net Rs 152.87 crore on Wednesday, 10 August 2011, as per provisional data from the stock exchanges. Domestic institutional investors (DIIs) bought shares worth Rs 289.95 crore on that day. After a recent sharp setback in share prices, a broad-based rebound was witnessed on the domestic bourses on Wednesday, 10 August 2011, as US Federal Reserve's decision on Tuesday, 9 August 2011, to keep US interest rates ultra-low for two more years raised expectations of increase in fund inflows into high-yielding emerging markets such as India. The BSE Sensex jumped 272.60 points or 1.62% to settle at 17,130.51, its highest closing level since 5 August 2011.

The Q1 June 2011 earnings season is drawing towards a close. Investors are focusing on 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.

Tata Motors, Reliance Infrastructure, Reliance Power, Castrol India and Shipping Corporation of India unveil quarterly results today, 11 August 2011. Tata Steel, Hindalco Industries, Coal India, National Aluminium Company, Jaiprakash Associates, Unitech, BPCL and HPCL unveil Q1 results on Friday, 12 August 2011. State Bank of India, Aditya Birla Nuvo, Reliance Communications, Reliance Capital and Shipping Corporation of India unveil Q1 results on Saturday, 13 August 2011.

Finance Minister Pranab Mukherjee on Thursday, 10 August 2011, said the Indian government and the Reserve Bank of India (RBI) are working together to ensure stability in local markets, which have been partly influenced by the US Federal Reserve's comments on interest rates. There won't be any cash crunch in Indian markets, Mukherjee said adding that the markets' movements are reflecting a return of investors' confidence after jittery trades for the past two days following the US rating downgrade.

Mukherjee early this week said the government will fast-track economic reforms and that the Indian economy remains an attractive investment destination for foreign investors despite the global growth slowdown worries. Mukherjee on Tuesday, 9 August 2011, said the decline in global crude prices will help in managing India's inflation.

The Reserve Bank of India (RBI) on Monday, 8 August 2011, said that the US rating downgrade has raised concerns of continuing turmoil in global financial markets as investors re-allocate portfolios in response to heightened risk perceptions stemming from the latest developments. As Friday's (5 August 2011) market behaviour demonstrated, India is not insulated from such developments, RBI said. It may, however, be noted that in the worst phase of the recent global financial crisis, the Indian economy grew by 6.8%, suggesting high resilience emerging from domestic factors, the RBI said in a statement.

While downside risks to growth may have increased in the wake of global developments, they are likely to have limited impact, RBI said. However, the policy and regulatory framework must anticipate and be prepared to respond to turbulent financial market conditions arising out of external developments, RBI said. In the immediate future, the RBI's priority is to ensure that adequate rupee and forex liquidity are maintained in domestic markets to prevent excessive volatility in interest rates and exchange rates.

Rupee liquidity is being provided through the Repo window of the Liquidity Adjustment Facility (LAF). As of now, the banking system does not face any liquidity pressures as evident from the low level of dependence on liquidity injections under the LAF, RBI said. In any case, the banking system currently has an adequate stock of Statutory Liquidity Ratio (SLR) securities, which are eligible for Repo transactions, RBI said. Further, the capacity of the LAF to inject liquidity has recently been augmented by the introduction of the Marginal Standing Facility (MSF), which allows banks to draw down SLR securities up to a further one per cent of their Net Demand and Time Liabilities (NDTL) in order to meet liquidity requirements. This will help stabilize the call rate within the LAF corridor, which is currently 7% to 9%, RBI said.

As regards forex liquidity, in anticipation of financial market turbulence related to the US debt ceiling impasse, the RBI recently made an assessment of the ability of the forex reserve portfolio to meet potential forex requirements in the event of significant capital outflows. This exercise indicated that there were sufficient liquid reserves to meet the demand for forex even in stress scenarios, RBI said.

RBI said it is closely monitoring all key indicators and will continuously assess the impact of global developments on rupee and forex liquidity and macroeconomic stability. "We will respond quickly and appropriately to the evolving situation, "RBI said.

Monsoon rains were 22% below normal in the week to 3 August 2011, recording marginal improvement from 23% below average showers in the previous week. Total rainfall since the beginning of the June-September monsoon season has been 6% below average. Rainfall has been normal or above in 73% of the country so far this season, while 27% of the country is facing a deficit. In some parts of eastern India such as Orissa, Bihar and Jharkhand, rainfall is below normal, but in the key rice-growing state of West Bengal rainfall is above normal. A rainfall deficit in the southern state of Andhra Pradesh, a top rice-producer, has largely been bridged.

In the northern grain bowl region of Punjab, the monsoon rain deficit is 26%. However, since most farmland in Punjab is irrigated, rice production may not be adversely affected in the state. But, low rainfall in the western regions is likely to adversely affect the output of groundnut, the second biggest summer-sown oilseed crop after soybean. In Gujarat, rainfall is 37% below average.

The Reserve Bank of India (RBI) raised its key lending rates by 50 basis points at a policy review on 26 July 2011, to tame high inflation. RBI had at time said that 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. A change in stance will be motivated by signs of a sustainable downturn in inflation, it had added.

Asian stocks fell on Thursday as the fallout from Wall Street's 4% drop overnight reflecting fears over Europe's worsening financial crisis. Fast-moving rumours about a sovereign debt downgrade of France as well as talk doubting the health of French bank failure swirled in Europe. The key benchmark indices in Hong Kong, Indonesia, Japan, Singapore and Taiwan fell by between 0.23% to 1.31%. The key benchmark indices in China and South Korea rose by between 0.49% to 0.97%.

Fear returned to Wall Street on Wednesday, sending the S&P 500 to another 4% decline, triggered by worries that Europe's debt crisis could engulf French banks and spill onto the US financial sector. Wednesday's drop came a day after stocks rallied on the Federal Reserve's pledge to keep interest rates near zero for at least two more years.

President Nicolas Sarkozy ordered his finance and budget ministers to find new ways to prune the public deficit on Wednesday, as markets fretted over France's strained finances and banks following a U.S. debt downgrade. France -- the most indebted of the euro zone's six AAA-rated states -- has vowed to cut its deficit to 4.6 percent of GDP next year and 3% in 2013, down from 7.1% in 2010 and an expected 5.7% this year.