Market seen slightly higher on positive global cues

The market is likely to see a positive start on firm global cues. US markets edged higher on Tuesday and most Asian markets were trading firm Wednesday amid hopes that European leaders are preparing a major response to the euro zone debt crisis. Trading of S&P CNX Nifty on the Singapore stock exchange indicates a gain of 7 points at the opening bell.

Foreign institutional investors (FIIs) bought shares worth Rs 34.08 crore on Tuesday, 27 September 2011, as per provisional data from the stock exchanges. FII outflow totaled a huge Rs 3668.99 crore in three trading sessions from 22 to 26 September 2011, as per data from the stock exchanges. Domestic institutional investors (DIIs) absorbed part of the heavy selling by FIIs, with net inflow of Rs 2084.06 crore during those three trading sessions.



The market may remain volatile in the near future as traders roll over positions in the futures & options (F&O) segment from the near-month September 2011 series to October 2011 series. The September 2011 derivatives contracts expire on Thursday, 29 September 2011.

Media reports that the finance ministry is considering some tax cuts on equities to lower transaction costs and broaden participation in the market helped the market snap 4-day losing streak on Tuesday, 27 September 2011. A rally in world stocks triggered by reports that European policy makers are considering new plans to support European countries struggling with debt, further aided the surge on the domestic bourses. The BSE Sensex jumped 472.93 points or 2.95% to settle at 16,524.03 and the S&P CNX Nifty surged 135.85 points or 2.81% to settle at 4,971.25.

Reports on Tuesday, 27 September 2011 indicated the finance ministry is considering some tax cuts on equities and foreign exchange trading to lower transaction costs and broaden participation in a market hurt by weak global sentiment. The ministry may cut stamp duty on forwards and options trading in equities to 0.003% and that on foreign exchange derivatives trading to 0.0001%, news reports on Monday, 26 September 2011, said quoting an unnamed finance ministry official.

The ministry may cut stamp duty on forwards and options trading in equities to 0.003% and that on foreign exchange derivatives trading to 0.0001%. The departments of revenue and economic affairs are debating the size of stamp duty cuts in the cash segment, the official said. While the stamp duty is levied by provincial governments and varies from state to state, the finance ministry is proposing it be made uniform, the official said. The final decision on stamp duty cuts will be taken by the federal cabinet, which will then need to be accepted and executed by the state governments, the official added.

The near-term major trigger for the market is Q2 September 2011 results. The advance tax payment by top 100 companies rose a modest 9.9% in Q2 September 2011 from a year ago against 19% growth in Q1 June 2011, suggesting corporate profit growth is likely to be muted in the second quarter. Among the big companies that have paid lower advance tax, indicating a drop in profits, include State Bank of India (SBI), Maruti Suzuki and state-run Neyveli Lignite Corporation. SBI's advance tax payment declined 14.2% to Rs 1650 crore in Q2 September 2011. Maruti's tax payment fell 55.8% to Rs 120 crore. Neyveli Lignite tax payment plunged 50.1% to Rs 66 crore. But, Reliance Industries' (RIL) advance tax payment jumped 37.6% to Rs 1800 crore, hinting at good Q2 results from the diversified firm.

Investors will closely watch the management commentary at the time of announcement of Q2 September 2011 results, which will provide cues on futures earnings outlook. IT bellwether Infosys kickstarts the Q2 September 2011 earnings season on 12 October 2011. Housing finance major HDFC unveils Q2 results on 17 October 2011.

Market regulator Securities and Exchange Board of India (Sebi) on Friday, 23 September 2011, notified the new takeover code which makes it mandatory for entities buying more than 25% stake in a listed firm to buy an additional 26% from the public. The new code will come into effect from 23 October 2011. Under existing norms, the trigger for making an open offer is 15% while the offer size has to be 20%. In July, Sebi board had approved the recommendations of the takeover panel with some changes. The new norm exempts inter se transfers of shares among promoters from making an open offer. The new norms also does away with the non-compete fee.

A news agency on Monday, 26 September 2011, quoted principal economic adviser to the ministry of finance Dipak Dasgupta as saying that the government has no plans to tax or impose restrictions on capital outflows. He said the government will instead focus on liberalising fund inflows into the economy, particularly via overseas borrowing.

Finance Minister Pranab Mukherjee recently 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."

The government recently 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. 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 recently cleared the ambitious $90-billion Delhi-Mumbai industrial corridor. The Delhi-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 recently approved projects worth Rs 18000 crore that include a housing project for para-military forces and a road project among others.

A memorandum of understanding (MoU) was signed recently 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 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 also said at that 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.

Food prices edged higher in the week ended 10 September 2011 as protein-rich foods kept becoming more expensive, offsetting a decline in vegetable and fruit prices and putting paid to hopes that inflationary pressures will ease anytime soon. The Reserve Bank of India (RBI) said at a monetary policy review on 16 September 2011 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. The RBI raised repo rate by 25 basis points on 16 September 2011.

For India, a weak rupee will offset the benefit of the recent steep fall in global commodity prices triggered by global growth worries. Most commodities imported by India, particularly oil, are denominated in dollars making these expensive for India. The rupee shed 4.4% of its value last week, its biggest fall since the week ended 12 July 1996.

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 in its 16 September 2011 policy statement. The overall tone of the RBI's latest policy was softer than the previous policy announcement which was extremely hawkish.

Reserve Bank of India Deputy Governor Subir Gokarn on Sunday, 25 September 2011, said the decline in the rupee in "so short a time" is a concern that reflects volatility in global financial markets. Sharp movements in the currency can be disruptive and tend to trigger panic, he said in a speech in Washington. India has not intervened with an exchange-rate target in mind for a long time and there are no plans to change the policy, he said.

Inflation in India remains high and will probably remain in a range of 9% to 10% until November 2011, Gokarn said. RBI said on 16 September 2011 that corporate margins moderated across several sectors in Q1 June 2011 compared to levels in Q4 March 2011. However, barring a few sectors, significant pass-through of rising input costs is still visible, RBI said.

RBI governor D Subbarao on Monday, 26 September 2011, said inflation rate remains above the level the central bank deems acceptable. Inflation has been fairly stubborn, Subbarao said in New York. "Above a threshold, you can't accept high inflation to have higher growth," he said, adding that the price-rise limit is as much as 6% for the nation. A rate of 4% to 6% is the short-term comfort range for inflation, Subbarao said. He said the central expects inflation to slow by March 2012, but more slowly than initially expected. Intervention in forex markets brings unexpected consequences, Subbarao said.

Finance Minister Pranab Mukherjee said at a conference in the US on 21 September 2011, that India's vibrant services sector, which makes up nearly 58% of GDP, could hold the economy from further slippage.

A late surge in rainfall has pushed this season's rains 4% above the 50-year average. India is aiming for record foodgrain output of more than 245 million metric tonnes this crop year that began on July 1, as well as bumper cotton, sugarcane and other crops. 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.

Most Asian stocks advanced on Wednesday, 28 September 2011 amid hopes that European leaders are preparing a major response to the euro zone debt crisis. Key benchmark indices in Indonesia, Japan, China Taiwan and South Korea were up by between 0.18% to 0.83%. Key benchmark indices in Singapore and Hong Kong were down 0.39% and 0.69%.

US stocks rose Tuesday, though were off day's high, as investors fretted over a report that highlighted a potential split in the euro zone over the terms of Greece's second bailout. The Dow Jones Industrial Average rose 146.83 points, or 1.33%, to 11190.69. The Standard & Poor's 500-stock index gained 12.43 points, or 1.07%, to 1175.38 and the Nasdaq Composite gained 30.14 points, or 1.2%, to 2546.83.

Greece's finance minister said that country would receive the next round of bailout loans in time to avoid a default. Greece was at risk of running out of money by mid-October if it did not receive the funds.

Germany's chancellor Angela Merkel also said her country would do whatever it could to help Greece regain investors' confidence.

The Federal Reserve said at the end of a two-day policy meeting on 21 September 2011 that there are significant downside risks to the US economic outlook and also noted strain in global financial markets.