A sell-off on cards on dismal global cues

The market is likely to see a steep sell-off on extremely weak global cues arising out of fears of a double-dip recession following weak economic data. Trading of S&P CNX Nifty on the Singapore stock exchange indicates a slump of 139 points at the opening bell.

FIIs sold shares worth a net Rs 254.55 crore on Thursday, 4 August 2011, as per provisional data from the stock exchanges. Domestic institutional investors (DIIs) bought shares worth Rs 316.5 crore on that day.

Concerns about corporate earnings growth, high food inflation and data showing aggressive selling by foreign institutional investors continued to rattle the bourses for the third straight session of trade on Thursday, 4 August 2011 with the barometer index BSE Sensex and the 50-unit S&P CNX Nifty hitting 6-week lows. The BSE Sensex lost 247.37 points or 1.38% to 17,693.18, its lowest closing level since 22 June 2011 and the S&P CNX Nifty declined 73 points or 1.35% to 5,331.80, its lowest closing level since 23 June 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.

Pharmaceutical firm Cipla is seen reporting a muted 1.61% growth in net profit to Rs 261.56 crore in Q1 June 2011 over Q1 June 2010 when it reports its earnings today, 5 August 2011, as per average estimate of 9 brokerages. The company's top line is expected to register a decent growth on the back growth in formulations exports led by the ramping up of its Indore Special Economic Zone (SEZ) facility and on growth in domestic formulations.

IL&FS Transportation Networks are set to announce Q1 results today, 5 August 2011. M&M announces Q1 results on Monday, 8 August 2011. ABB, Tata Communications, Mahindra Satyam, GMR Infrastructure and VIP Industries announce quarterly results on 9 August 2011. Tata Power and Rural Electrification Corporation unveil Q1 results on 10 August 2011. Tata Motors, Reliance Infrastructure, Reliance Power, Castrol India and Shipping Corporation of India unveil quarterly results on 11 August 2011.

Tata Steel, Hindalco, Coal India, National Aluminium Company, Jaiprakash Associates, Unitech and HPCL unveil Q1 results on 12 August 2011. State Bank of India, Aditya Birla Nuvo and Shipping Corporation of India unveil Q1 results on 13 August 2011.

Monsoon rains are likely to pick up over most parts of the country in the next four to five days, after sharply slowing for two consecutive weeks during the most important sowing period for summer crops. A news agency quoted an unnamed senior official with the state-run India Meteorological Department (IMD) as saying that the country's important rice-and oilseed-growing regions, the eastern and central parts, are likely to receive more rains in the near future after getting intermittent showers in the past few days.

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. In Gujarat, rainfall is 37% below average. Low rainfall in the western regions is likely to adversely affect the output of groundnut, the second biggest summer-sown oilseed crop after soybean.

Food price index rose 8.04% and the fuel price index climbed 12.12% in the year to 23 July 2011, government data on Thursday showed. In the previous week, annual food and fuel inflation stood at 7.33% and 12.12%, respectively. The primary articles price index was up 10.99%, compared with an annual rise of 10.49% a week earlier.

The Reserve Bank of India (RBI) on Tuesday, 2 August 2011, tightened its rules on sales of derivative products, in a move aimed at preventing the mis-selling of these complex products to local firms. RBI said in a notification that no bank can be a "market maker" in a product that it can't price independently, even if it covers the risk from the deal with another bank immediately. A market maker is a financial middle-man, typically a bank, that helps the price discovery process and adds liquidity to the market by quoting both bid and ask prices for financial products.

The new rules prevent foreign banks from being market makers in a product if they can't price it locally. Banks must also now make sure that officials to whom they sell derivative products are backed by the board to execute such transactions, the RBI said. RBI didn't specify what derivatives are covered by the new rules.

The services sector expanded at its fastest clip in three months in July 2011, driven by solid expansion of new business, but input prices also rose faster, a survey showed on Wednesday, 3 August 2011. The HSBC Markit Business Activity Index, based on a survey of around 400 companies, rose to 58.2 in July from 56.1 in June, staying above the 50 mark that separates growth from contraction for the 27th consecutive month. The new business sub-index recorded its strongest growth since February, rising to 59.3 from 57.1, as demand improved and firms found new customers.

The economy will grow at 8.2% in the year to March 2012, but it faces a challenge in achieving the fiscal targets set in the annual budget, a top economic advisory panel said in a report released early this week. Headline inflation would remain close to 9% till October, before beginning to ease, and would be at 6.5% in March, the prime minister's Economic Advisory Council said.

Exports grew by an impressive 46% to $29 billion in June 2011, despite uncertainty in the US and European markets, the latest data showed. Merchandise exports had aggregated to $20 billion in June 2010. During the April-June quarter, overseas shipments grew by 46% to $79 billion, according to Commerce Ministry data released on Monday, 1 August 2011. Though imports grew by 42% to $37 billion in June, the trade deficit of $7.6 billion was almost half the level of $15 billion seen in May, lessening concerns over the country's balance of payments situation.

Growth in manufacturing sector fell for the third month in a row in July as a long series of interest rate hikes and faltering global demand weighed on new orders and output growth, a survey showed on Monday, 1 August 2011. The HSBC Markit Business Activity Index, based on a survey of around 500 companies, fell to a 20-month low of 53.6 in July from 55.3 in June, though it remained above the 50 mark that separates growth from contraction for the 28th consecutive month.

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. 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.

Tracking the gloomy US markets, the Asian pack was trading with deep cuts in early trade on Friday. The key benchmark indices in South Korea, Singapore, Indonesia, Hong Kong, Taiwan China, Japan were down by between 1.71% to 4.33%.

US markets tumbled on Thursday on account of the poor shape of the nation's economy and renewed debt concerns from Europe. The Dow Jones Industrial Average slumped 512.46 points or 4.31% at 11,383.98, its biggest one-day fall since December 2008. The S&P 500 fell 60.21 points or 4.78% at 1,200.13 and the Nasdaq Composite index tanked 136.68 points or 5.08% at 2,556.39.

The European Central Bank (ECB) on Thursday left its key lending rate unchanged at 1.5% amid market turmoil, as widely expected by markets and economists. Also the Bank of England (BOE) on Thursday kept its monetary policy unchanged as the central bank policymakers continued to be trapped between higher-than-normal inflation and a slowing British economy. The nine-member Monetary Policy Committee left the bank's key lending rate steady at a record low 0.5% and left the size of its asset-purchase program unchanged.

The ECB president Jean-Claude Trichet's comments that “downside risks have intensified” led the region's key indices lower on Thursday.

The Bank of Japan announced additional monetary easing Thursday, while keeping its policy interest-rate target range unchanged at 0 to 0.1%.

The US government's key monthly jobs report for July 2011 is due today, 5 August 2011, and will be closely watched by investors to gauge the health of the world's biggest economy. Disappointing numbers would fuel speculation about a double-dip recession. But, if the report comes in line with estimates, investors will breathe a sigh of relief.