Market may edge higher on firm Asian stocks; August inflation data eyed

The market may snap three-day 4% losses on firm Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 85 points at the opening bell. Inflation based on wholesale prices is forecast at 9.6% for August 2011, higher than a reading of 9.22% in July 2011, as per the median estimate of 13 economists polled by Capital Market. The data is due today, 14 September 2011. Eleven out of twelve economists polled by Capital Market expect a 25 basis points (bps) hike in repo rate, the key short-term policy interest, from the Reserve Bank of India at its mid-quarter policy review on Friday, 16 September 2011.



Investors will keenly watch data on second quarter September 2011 corporate advance tax payment due on Thursday, 15 September 2011, which may provide cues on Q2 September 2011 results.

An India investor survey report prepared by J P Morgan Asset Management-ValueNotes expects benchmark Sensex to trade between 20,000 and 22,000 by end of this year. According to the report, the investment sentiment is affected by concerns such as recession, frequent hikes in interest rates and volatility in the domestic investment environment. Despite witnessing a 4.2-point decline from the last quarter, the 'Retail Investor Confidence Index' ranks the highest at 137.5 points. Retail investors' activity in mutual funds has improved 11% since the last quarter, the survey said. The survey was carried out from 22 July to 4 August 2011.

The survey also shows that investors are becoming cautious as preserving capital emerges as a popular investment strategy among retail investors (40%. However, 40% of investors, in comparison to 57% in March 2011, are expected to turn "somewhat aggressive" about their investment strategy over the coming six months.

Euro-zone debt worries pulled the market lower for the third straight day on Tuesday, 13 September 2011, with the barometer index BSE Sensex and the 50-unit S&P CNX Nifty reaching two-week closing lows. The Sensex shed 34.30 points or 0.21% to settle at 16,467.44, its lowest closing level since 29 August 2011.

Foreign institutional investors (FIIs) sold shares worth Rs 468.41 crore and domestic institutional investors bought shares worth Rs 121.19 crore on Tuesday, 13 September 2011, as per the provisional figures. FIIs offloaded shares worth a net Rs 1830.82 crore in three trading sessions from 9 to 13 September 2011, as per data from the stock exchanges. Before the two-day selling, FIIs had bought shares worth a net Rs 2986.81 crore during seven trading sessions from 29 August 2011 to 8 September 2011, as per data from the stock exchanges.

Finance Minister Pranab Mukherjee on Tuesday, 13 September 2011, said central banks in emerging economies have been forced to raise interest rates repeatedly as they battle high inflation, exposing them to volatile capital flows. "An issue of immediate concern for emerging economies is managing large capital flows," he said. "Large and volatile capital flows to emerging markets can be destabilizing as they lead to high exchange rate volatility and in some cases make it incumbent to maintain high levels of foreign exchange reserves as an insurance against sudden and large-scale flight of international capital."

Economic affairs secretary R. Gopalan on Tuesday, 13 September 2011, said the government will review the cap on overseas corporate borrowings at the end of September 2011. The government currently allows overseas borrowings of up to $30 billion. However, that limit is expected to be reached fast as companies shy away from the high cost of domestic borrowing costs. US and other European countries have near-zero interest rates in a bid to support weak economic growth.

Given the lackluster initial FII response to the government's sharply raising the ceiling of FII investment in long-term corporate bonds issued by the companies in the infrastructure sector in March 2011, the government on Monday, 12 September 2011, further relaxed the norms on FII investment in such bonds. The Finance Ministry said in a statement that FIIs can now invest in long-term infra bonds, subject a ceiling of $5 billion limit, which have an initial maturity of five years or more at the time of issue and residual maturity of one year at the time of first purchase by FIIs. These investments are subject to a lock-in period of one year. FIIs can trade amongst themselves in these bonds but cannot sell to domestic investors during the lock-in period of one year.

FIIs can also now invest, subject to a ceiling of $17 billion, in long-term infra bonds which have an initial maturity of five years or more at the time of issue and residual maturity of three years at the time of first purchase by FIIs. These investments are subject to a lock-in period of three years. During the three-year lock-in period, FIIs can trade amongst themselves but cannot sell to domestic investors. The Securities & Exchange Board of India (Sebi) is expected to issue notifications incorporating these changes in the scheme by 15 October 2011.

Sebi had in early August 2011 allowed Qualified Foreign Investors (QFIs) to subscribe to Mutual Fund Debt Schemes which invest in the infrastructure sector subject to a total overall ceiling of $3 billion within the total ceiling of $25 billion.

Planning Commission deputy chairman Montek Singh Ahluwalia on Monday, 12 September 2011, said at a conference that private funding has to make up half of the infrastructure investment of $1 trillion planned for in the five years during 2012-2017. Prime Minister Manmohan Singh said at the conference that to overcome the fund crunch for infrastructure projects, the government has proposed to set up a $11 billion fund to help finance infrastructure projects. "We have also constituted a high-level committee to suggest measures necessary for financing our ambitious program in infrastructure development," Mr. Singh said.

Industrial production grew a dismal 3.3% in July 2011 from a year earlier, hurt by a sharp fall in capital goods output, government data showed on Monday, 12 September 2011. The reading was sharply lower than the 8.8% industrial output growth recorded in June 2011. July capital goods output shrank 15.2% from a year earlier, compared with a 38% expansion in June. Manufacturing output, which has a 75.5% weight in the index, rose 2.3% year on year in July, compared with a 10% rise in June. Mining output grew 2.8%, compared with a revised 1.1% contraction in June.

Prolonged rainfall in the latter part of the season has helped ease concerns that this year's monsoon might drop below the long-term average after a brief lull in July, when the country usually receives a third of its monsoon rains. The monsoon was 3% above average till 7 September 2011, as per the latest data from Indian Meteorological Department (IMD). Most parts of the country received average to above-average rainfall this year, but the season was marked by both lulls and periods of intense rainfall in western and eastern regions.

While overall rainfall plays a key part in determining farm output, the timing and distribution of rains are also important to ensure a good crop. The unusual pattern of this year's rains may delay harvesting, affecting the yield from key summer-sown crops such as rice, oilseeds, sugarcane and cotton. Rice acreage as of 2 September 2011 was up 12% from last year at 35.75 million hectares.

A good monsoon season can typically boost rural farm incomes and have an impact on the wider economy through increased spending on consumer goods as well as reduced prices of food items. But food prices may not necessarily fall if delayed and excess rains in some regions affect crop yields.

Annual inflation in the Food Articles group fell to 9.55% in the week ended 27 August 2011, from 10.05% in the previous week, the latest data showed. It was at 14.76% in the corresponding period of last year. However, inflation in the Primary Articles group climbed to 13.34% in the week under review, from 12.93% in the week ended 20 August 2011. It was at 15.24% in the year-ago period. Inflation in the Fuel & Power group was at 12.55% in the week ended 27 August, unchanged from the previous week, the latest data showed. It was at 12.61% in the comparable week of the previous year.

The Reserve Bank of India (RBI) has said that a change in anti-inflationary monetary stance will be motivated by signs of a sustainable downturn in inflation. The Reserve Bank of India has raised its key policy rate 11 times in the past 18 month to tame high inflation.

Moody's Investors Services affirmed its Baa3 rating for India's foreign currency government debt and its Ba1 rating for local currency debt in an annual credit analysis released last week. The ratings firm assigned a positive outlook to India's rupee-denominated bonds, saying it will consider a unified Baa3 rating for all bonds if India improves its fiscal position and its commitment to strengthening the domestic market. The outlook for foreign-currency debt is stable.

The report was upbeat about India's ability to weather a global economic downturn. "While it is not immune to an international growth slowdown, the strength of domestic demand and the diversity of the economy provides a buffer against a deceleration in globally exposed sectors," the report said. It noted that India's foreign currency reserves equal four times its foreign debt obligations.

A debt-to-GDP ratio of 71% is cause for concern, as interest on this debt eats up 25% of India's revenues annually. However, "Moody's expects that continued GDP growth and incremental fiscal consolidation efforts will continue to lower the government debt/GDP ratio," the report said.

India's merchandise exports grew 44.2% in August 2011 from a year earlier, totaling $24.3 billion, sharply slowing from the previous month's pace, Commerce Secretary Rahul Khullar said last week. Imports in the just-ended month rose 41.8% from a year earlier to $38.4 billion, which widened the trade deficit to $14.1 billion from $11.1 billion in July.

Prospects for job seekers are gloomier in most major economies than they were three months ago, as weak US and European economies begin to affect employers' confidence in other parts of the world, according to a quarterly hiring survey by ManpowerGroup. The global staffing services company said the fourth-quarter hiring outlook is lower in 21 of 39 countries and territories, including the United States. Prospects are stronger in 13 economies and unchanged in five others versus the third-quarter.

Manpower's global survey, which polled more than 65,000 employers, found evidence slow US growth was affecting job creation elsewhere. India's hiring outlook fell steeply from the third quarter, partly because its information technology industry relies on US sales. Employers in China are also expecting less robust hiring in the next three months. Europe's austerity programs are also hurting demand for goods produced in emerging markets, Manpower said

Most Asian stocks rose on Wednesday, 14 September 2011, with technology and energy firms among the best performers, although gains were muted ahead of more developments in Europe's debt saga. The key benchmark indices in Indonesia, China, Hong Kong and Singapore rose by between 0.18% to 0.59%. The key benchmark indices in Japan, South Korea and Taiwan fell by between 0.2% to 2.2%.

Investors appeared to be pinning hopes on progress being made during a conference call planned between French President Nicolas Sarkozy, German Chancellor Angela Merkel and Greek Prime Minister George Papandreou later in the global day.

The euro-zone Economic and Financial Affairs Council (Ecofin) holds an informal meeting in Poland on Friday, 16 September 2011. Treasury Secretary Timothy Geithner is attending the meeting, reports suggest. Ecofin is one of the oldest configurations of the Council of the European Union and is composed of the Economics and Finance Ministers of the 27 European Union member states, as well as Budget Ministers when budgetary issues are discussed.

US stocks gained on Tuesday as investors bought shares beaten down in recent weeks and bet European leaders would take action soon to ease the Greek debt crisis.

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.