Key global events to dictate near term trend

Key global events remain on investors' radar as euro-zone worries persist. The Indian government's decision to defer the mega Rs 11000 crore follow-on public offer (FPO) of ONGC has helped ease concerns of the large issue sucking secondary market liquidity.

With Q2 September 2011 drawing towards a close, focus may shift to expectations of Q2 results of individual firms. Advance tax payments made by the top 100 companies based in the country's financial capital Mumbai reportedly rose 18% in Q2 September 2011. The tax collections are not uniformly good or bad across companies and sectors, except for oil marketing companies, which saw a decline in levies paid.



Reliance Industries' advance tax payment reported jumped 66.67% to Rs 2000 crore in Q2 September 2011 over Q2 September 2010. State Bank of India's advance tax payment reportedly declined 10% to Rs 1700 crore. On the other hand, peers such as HDFC Bank and Bank of Baroda showed growth in tax numbers. HDFC Bank paid Rs 800 crore, 33% more than a year ago, while Bank of Baroda paid Rs 630 crore, 80% more. Others such as ICICI Bank and Bank of India showed no growth in levies paid.

Global markets will on Monday, 19 September 2011, react to the outcome of the two-day meeting of euro-zone finance ministers in Poland to consider new measures to fight the deepening euro-zone sovereign debt crisis. The meeting which began on Friday, 16 September 2011, ends on Saturday, 17 September 2011. US Treasury Secretary Timothy Geithner has also flown in for the two-day European Union finance ministers' meeting.

Investors will be looking for signs that policy makers are ready to take steps to ensure the implementation of the 21 July 2011 agreement by heads of state to enhance the power of the European Financial Stability Facility (EFSF) and provide a second bailout for Greece. A spat triggered by Finland's demand for collateral from Greece in return for Helsinki's participation in a second bailout program has raised tensions. Moreover, uncertainty over Greece's ability to meet deficit criteria needed to secure its next round of funding under its bailout has stoked fears of a potential near-term default.

Ministers are expected to further discuss the possibility of developing a euro bond that would be issued collectively by the euro zone. Such a move would lower borrowing costs for weaker euro members, but would likely raise borrowing costs for stronger members. Such an effort remains opposed by Germany.

Ministers are also expected to focus on efforts to prevent the spread of the crisis to Italy, the region's third-largest economy, and Spain, its fourth-largest. The European Central Bank (ECB) has reluctantly but aggressively bought bonds since early August 2011 in an effort to drag down bond yields in both countries. The measures are widely seen as a temporary measure to keep borrowing costs from rising to unsustainable levels until national parliaments approve the proposed changes to the EFSF, which will allow the fund to buy bonds in the secondary market.

The Federal Open Market Committee (FOMC) is scheduled to undertake a two-day policy review on US interest rates on 20 and 21 September 2011. It remains to be seen if the Federal Reserve announces further measures to revive the US economy. Among the options that the Fed may consider include another round of quantitative easing or QE3, the Operation Twist which is the purchase of long-term verses selling short-term bonds so as to lower long-term yields, and lowering the rate on excess reserves held by banks at the Fed in order to increase the monetary aggregates.