Market may open flat to slightly lower

Firm Asian shares and higher US index futures may cap downside on the domestic bourses. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 12 points at the opening bell. Asian stocks rose on Friday, 9 September 2011, as Chinese consumer and producer price indexes showed inflation cooling in August 2011, though the results were slightly above forecast. US index futures rose on Friday, 9 September 2011, after US President Barack Obama proposed a cut in payroll taxes to jolt a US economy he described as a "national crisis." US is the world's biggest economy.



Resumption of buying by foreign funds this month, gains in world stocks and good monsoon rains helped Indian shares extend recent strong gains on Thursday, 8 September 2011. The BSE Sensex jumped 100.54 points or 0.59% to 17,165.54, its highest closing level since 5 August 2011.

Foreign institutional investors (FIIs) bought shares worth Rs 14.14 crore on Thursday, 8 September 2011, as per provisional data from the stock exchanges. FII inflow totaled Rs 1999.71 crore in the first few days this month, till 8 September 2011, as per data from the stock exchanges.

The market has staged a strong rebound after a steep setback in August 2011. The Sensex jumped 1,316.71 points or 8.3% in seven trading session to 5-week closing high of 17,165.54 on Thursday, 8 September 2011, from 18-1/2-month closing low of 15,848.83 on 26 August 2011.

Data on second quarter September 2011 corporate advance tax payment due on 15 September 2011 may provide cues on Q2 September 2011 results.

Bharti Airtel India's top mobile carrier has reportedly secured a licence to operate 2G and 3G services in Rwanda. The company will reportedly invest $100 million in the country over three years.

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. Data on 12 September 2011 on industrial production for July 2011 and on 14 September 2011 on headline inflation for August 2011 will provide cues on the central bank's likely policy stance at its mid-quarter monetary policy review on 16 September 2011. The Reserve Bank of India has raised its key policy rate 11 times in the past 18 month to tame high inflation.

Montek Singh Ahluwalia, deputy chairman of the Planning Commission, on Thursday, 8 September 2011, said that he agrees with the finance minister's view on pausing India's tight monetary stance.

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 early this 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 services sector grew at its slowest pace in more than two years in August 2011, throttled by feeble expansion in new business as a faltering global economy and tight domestic monetary conditions weighed, a survey showed on Monday, 5 September 2011. The HSBC Markit Business Activity Index, based on a survey of around 400 companies, slumped to 53.8 in August from 58.2 in July, the index's biggest one-month decline since January 2009. It was also the weakest growth since June 2009, but the index has stayed above the 50 mark that separates growth from contraction for 28 consecutive months.

The new business sub-index fell to its lowest level in three months in August, at 54.9 from July's 59.3, as dampening global economic conditions knocked orders. Expectations for new business were also scaled back in August. The survey also showed a reduction in service sector employment levels for the second consecutive month as new business growth slowed while input costs and output prices continued to march ahead.

India's manufacturing activity in August 2011 slowed to a 29-month low as exports took a beating amid the lingering uncertainty in the global economic environment, a survey showed last week. The seasonally adjusted HSBC Purchasing Managers' Index, prepared by Markit, fell to 52.6 in August from 53.6 in July. The pace of new order flows in August decelerated to the slowest in 29 months as export orders contracted at the sharpest rate since the series was started, HSBC said.

Production backlogs fell for the first time since March 2010 as pressure on operating capacity subsided. Also, inflationary pressures intensified as both input and output prices rose.

Exports surged 81.79% to $29.3 billion while imports jumped 51.5% to $40.4 billion in July 2011 over July 2010, leaving a trade deficit of $11 billion, data showed last week.

Asian stocks inched up on Friday as Chinese consumer prices data soothed fears over inflationary pressures building in the world's No.2 economy, but the mood was cautious after Western central banks failed to offer any fresh stimulus plans. The key benchmark indices in Hong Kong, China, Taiwan, Japan, and Indonesia were up by between 0.09% to 1.07%. The key benchmark indices in South Korea and Singapore fell by between 0.18% to 0.36%.

US index futures rose on Friday, 9 September 2011, after US President Barack Obama proposed a cut in payroll taxes to jolt a US economy he described as a "national crisis." Trading in US index futures indicates that the Dow could gain 49 points at the opening bell.

US stocks closed sharply lower on Thursday after Federal Reserve Chairman Ben Bernanke gave no indications of new stimulus measures to boost the flagging economy in a keenly awaited speech. A rise in jobless claims reported earlier in the day underscored the weakness of the US economy. Separately, the government said the US trade deficit narrowed considerably in July, a positive signal for economic growth in the third quarter after a sluggish first half.

Federal Reserve Chairman Ben Bernanke on Thursday said the US central bank would spare no effort to boost weak growth, but to the dismay of investors stopped short of a full plunge into further monetary support. Bernanke said a rise in consumer prices this year would likely to be transitory.

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.