Market may open lower

The market may open lower if trading of S&P CNX Nifty futures on the Singapore stock exchange is of any indication. It indicates a fall of 31 points at the opening bell. Asian stocks were mostly higher.

Key benchmark indices spurted to 1-1/2 week closing highs on Tuesday, 20 September 2011 as European stocks rose and as US index futures jumped, buoyed by expectations that Greece will receive the next aid tranche from international creditors as well as hopes that the Federal Reserve may announce fresh measures to stimulate the economy. The BSE Sensex jumped 353.93 points or 2.11% to settle at 17,099.28, its highest closing level since 8 September 2011.



Foreign institutional investors (FIIs) bought shares worth Rs 318.84 crore on Tuesday, 20 September 2011.

In corporate news, India's top mobile phone carrier Bharti Airtel, signed up 11.50 lakh mobile subscribers in August, taking its total number of users in the country to 17.185 crore, the Cellular Operators' Association of India said. Fourth-ranked Idea Cellular added 23.30 lakh mobile subscribers to give it a total of 9.84 crore.

Maruti Suzuki India reportedly on Tuesday produced a total of 620 units of the Swift hatchback, up from 600 units on Monday, at both its factories, even as labor problems at one of the plants remains unresolved. The Suzuki Motor Corp. unit said it remains focused on increasing production of the Swift, one of its best-selling models, to meet higher demand. Maruti halted production at its Manesar plant in the northern Haryana state on Aug. 29 after it asked 950 workers belonging to the Maruti Suzuki Employees Union to sign a bond before they could enter the factory. The move came after the company said it discovered "serious and deliberate" quality problems in cars made at the plant and suspended or dismissed 21 employees. Talks between striking workers and Maruti management failed late Sunday after the employees stuck to the demand that the company take back dismissed colleagues.

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. As per the original plan, the FPO was scheduled to open for bidding on 20 September 2011.

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.

Finance Minister Pranab Mukherjee early last week 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."

A recent 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.

At the time of announcing a 25 basis points rate hike, the Reserve Bank of India (RBI) on Friday, 16 September 2011, said that it is imperative to persist with the current anti-inflationary stance because a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions.

In recent weeks, as a result of global risk aversion, the rupee has depreciated, which may have adverse implications for inflation, the RBI said. Inflation remains high, generalised and much above the comfort zone of the Reserve Bank of India, it said. The central bank said that Friday (16 September 2011)'s repo rate hike is expected to reinforce the impact of past policy actions to contain inflation and anchor inflationary expectations. As monetary policy operates with a lag, the cumulative impact of policy actions should now be increasingly felt in further moderation in demand and reversal of the inflation trajectory towards the later part of 2011-12, RBI said.

Going forward, the stance of the monetary will be influenced by signs of downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments, RBI said.

Although India's exports have performed extremely well in the recent period, this trend is unlikely to be sustained in the face of weakening global demand, RBI said. This, combined with the slowing down of domestic demand, to which the monetary policy stance is also contributing, suggests that risks to the growth projection for 2011-12 made in the July 2011 monetary policy review are on the downside, RBI said.

Corporate margins in Q1 June 2011 moderated across several sectors compared to levels in Q4 March 2011. However, barring a few sectors, significant pass-through of rising input costs is still visible, RBI said.

The central government's fiscal imbalances widened during April-July of 2011 reflecting, primarily, the impact of decline in revenue receipts coupled with pressures from non-plan revenue expenditures on account of higher petroleum and fertiliser subsidies. Fiscal deficit at 55.4% of the budget estimates in the first four months of the current fiscal was significantly higher than that of 42.5% during the corresponding period last year (when adjusted for the more than budgeted spectrum proceeds).

Reacting to the RBI's latest rate hike, Navneet Munot, Chief Investment Office (CIO), SBI Mutual Fund said, "The lag effect of past actions and global environment would moderate the domestic demand and inflation trajectory going forward, in our view. Our sense is that RBI is likely to take a pause after today's rate action. This should be viewed positively by bond and equity markets. Sentiments in equity markets should improve on evident signs of peaking of rate cycle. Markets would closely watch global developments and movement in commodity prices".

Bank of America Merrill Lynch said in a research note after the RBI's latest hike that it continues to believe that the Indian rate cycle is peaking with growth likely to slip below 7.5% during the second half of 2011 and inflation set to come off to 7% in Q1 2012. The RBI will pause after a final 25 basis points (bps) policy rate hike on 25 October 2011 and cut rates by 100 bps from April 2012 onwards, it said.

Reacting to RBI's latest rate hike, Dhawal Dalal, Senior Vice President and Head Fixed Income, DSP Black Rock Mutual Fund, said the RBI is likely to increase the repo rate by another 25 bps at its next policy review on 25 October 2011. "We expect the RBI to pay a lot more attention to the inflation trajectory going forward with focus on core inflation. The RBI has not been unduly worried about the prospective slowdown in the GDP numbers and is confident of the resilient nature of economy", Dalal said.

Economic Affairs Secretary R. Gopalan on Thursday, 15 September 2011, said that the government has raised the limit of overseas borrowing for companies to $750 million from $500 million. Indian companies can also now raise loans up to $1 billion in Chinese yuan, Mr. Gopalan added. The relaxation of overseas borrowing rules will help Indian companies tap cheaper cash abroad amid rising credit costs in the local market. US and European countries have near-zero interest rates in a bid to support weak economic growth.

The government on Thursday, 15 September 2011, cleared the ambitious $90-billion Delhi-Mumbai industrial corridor. The Delihi-Mumbai industrial corridor project will set up nine mega industrial zones of about 200-250 square kilometre (km) along with a 1,500 km high speed freight line connecting the two cities. It will include three ports and six airports, as well as a six-lane intersection-free expressway connecting the two cities and a 4,000 megawatts (MW) power plant and also set up seven new cities.

The public private partnership (PPP) approval committee approved projects worth Rs 18000 crore on Thursday, 15 September 2011, that include a housing project for para-military forces and a road project among others.

A memorandum of understanding (MoU) was signed last week between India Infrastructure Finance Company (IIFCL), LIC and IDFC with respect to the Takeout Finance Scheme (TFS). Under the MoU, the project lender(s) will offer eligible infrastructure projects to IIFCL for availing takeout financing. Finance Minister Pranab Mukherjee said he expects this mechanism will help financing to the tune of Rs 30000 crore, adding this will facilitate banks to take more exposure in new projects, which in turn will help in bridging the gap in infrastructure financing.

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 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.

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 first advance estimates for the 2011-12 kharif season point to a record production of rice, oilseeds and cotton, while the output of pulses may decline.

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.

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 month. 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.

Asian stocks held steady on Wednesday ahead of the conclusion of a two-day U.S. Federal Reserve policy meeting in which Chairman Ben Bernanke is widely expected to announce further steps to stimulate a flagging economic recovery. Key benchmark indices in China, Taiwan Indonesia and South Korea rose by between 0.01% to 0.67%. Key benchmark indices in Hong Kong and Singapore fell by between 0.18% to 0.98%.

The International Monetary Fund (IMF) on Tuesday said it was trimming its forecasts of economic growth for India, China and other Asian developing economies due partly to slower growth in the rest of the world. For all developing Asia, the IMF lowered its forecasts to 8.2% growth in 2011 and 8.0% growth in 2012, from its June forecast of 8.4% growth for both years. The developing Asia group includes China, India, Indonesia, Thailand, Malaysia, Philippines, Vietnam and close to 20 other smaller economies. The IMF forecast India's economy to grow 7.8% in 2011 and 7.5% in 2012, down from its June forecasts of 8.2% and 7.8%, respectively.

Fitch affirmed Germany's top AAA credit rating on Tuesday and said its outlook was stable, but warned that Europe's largest economy still faces risks from the euro zone debt crisis. The agency said a solution to the crisis, which has forced smaller indebted euro zone countries to seek emergency aid, putting upward pressure on their borrowing costs, is needed to ensure stability in the German economy.

U.S. stocks ended little changed on Tuesday as investors waited to see if the U.S. Federal Reserve would offer more economic stimulus and if Greece made progress in talks to avoid a default. In the lowest volume session since late August, the market gave up earlier gains of about 1% as investors were wary of going home with long positions after an overnight downgrade of Italy's credit rating. Data that showed U.S. housing starts declined more than expected in August failed to catch much attention from the market.

A two-day policy meeting of the Federal Open Market Committee (FOMC) on US interest rates began on Tuesday, 20 September 2011 ais slated to end today. There are expectations that the Federal Reserve will announce fresh measures to stimulate the economy as the US unemployment rate remains above 9%. 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.