Market may edge lower on weak Asian stocks; food inflation data eyed

The market may edge lower in the opening trade, tracking weak Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 51 points at the opening bell. Biotech major Biocon will be in focus after the company reported 5% growth in consolidated net profit in Q2 September 2011 after trading hours on Wednesday, 19 October 2011. Bajaj Auto, Cairn India, UltraTech Cement, Exide Industries and Thermax unveil quarterly results today, 20 October 2011.

On the macro front, the government will today, 20 October 2011, unveil data on some wholesale price indices viz. the food price index, the primary articles index and the fuel price index for the year through 8 October 2011.



Biotech major Biocon's consolidated net profit rose 5% to Rs 86 crore on 23% growth in revenue to Rs 524 crore in Q2 September 2011 over Q2 September 2010. Earnings before interest, taxation, depreciation and amortization rose 9% to Rs 149 crore.

Good Q2 results from Hero MotoCorp and HDFC Bank helped key benchmark indices clock smart gains on Wednesday, 19 October 20011, a day after the market fell 1.63% on Tuesday, 18 October 2011, on disappointing earnings from IT majors TCS and HCL Technologies. The BSE Sensex surged 337.05 points or 2.01% to settle at 17,085.34, its highest closing level since 20 September 2011.

Foreign institutional investors (FIIs) sold shares worth Rs 14.45 crore on Wednesday, 19 October 2011, as per provisional figures on stock exchanges. FIIs had sold shares worth Rs 285.19 crore on Tuesday, 18 October 2011 after buying shares worth Rs 378.71 on Monday, 17 October 2011, as per data from the stock exchanges. FIIs had sold shares worth Rs 94.04 on Friday, 14 October 2011. Earlier, FIIs had made substantial purchases. FIIs had purchased shares worth a net Rs 2082.50 crore in five trading sessions from 7 October 2011 to 13 October 2011. The inflow came after heavy outflow early this month. FIIs had dumped shares worth a net Rs 2806.19 crore in the first three trading sessions from 3 October to 5 October 2011.

Finance Minister Pranab Mukherjee on Wednesday, 19 October 2011, said that the government is concerned about the volatility of FII flows. Mukherjee said loose monetary policies adopted by central banks in advanced economies have added to global liquidity, driving investments into better off emerging economies and fueling inflation in these countries.

India's economy will grow at a rate less than the earlier government projection in 2011/12, Mukherjee said. "With the crude prices remaining where they are it will be a great challenge to maintain the fiscal deficit numbers to 4.6% this year," Mukherjee said.

Stock-specific activity may dominate trade in the near-term as earnings trickle in. 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.

Engineering & construction major L&T, Idea Cellular, paints major Asian Paints, JSW Steel and Godrej Consumer Products reveal Q2 results tomorow, 21 October 2011. Axis Bank, Power Grid Corporation and Grasim unveil Q2 results on Saturday, 22 October 2011. Cigarette major ITC, Sterlite Industries and Titan Industries unveil Q2 results on 24 October 2011.

NTPC, Kotak Mahindra Bank and Dr. Reddy's Lab unveil Q2 results on 25 October 2011. Indian Hotels unveils Q2 results on 28 October 2011. Maruti Suzuki and LIC Housing Finance report Q2 results on 29 October 2011. ICICI Bank, Wipro, Hindustan Unilever, Dabur India, Colgate Palmolive (India), NMDC and BPCL unveil Q2 results on 31 October 2011. Cement majors ACC and Ambuja Cements and Aditya Birla Nuvo unveil quarterly results on 1 November 2011. Sun TV Network and TVS Motor report Q2 results on 3 November 2011. Bharti Airtel and GlaxoSmithKline Pharmaceuticals unveil quarterly results on 4 November 2011.

Infrastructure Development Finance Company and ABB unveil results on 8 November 2011. Ranbaxy Laboratories and Power Finance Corporation unveil quarterly results on 9 November 2011. Hindalco unveils Q2 results on 10 November 2011. Jet Airways (India) and Tata Chemicals unveil Q2 results on 11 November 2011. Tata Motors, Mahindra & Mahindra and India Cements unveil Q2 results on 14 November 2011. Tata Power unveils Q2 results on 15 November 2011.

The market regulator Securities and Exchange Board of India recently set a minimum net worth of Rs 100 crore for companies that wish to issue structured products or market-linked debentures to raise funds. Sebi also set the minimum size for such issues at Rs 10 lakh. Market-linked debentures are hybrid products which have the features of usual debt securities, but offer market-linked returns like an exchange-traded derivative. The issuer company will have to appoint a third party, a credit-rating company registered with the regulator, which will provide the value of the security at least once a week, Sebi said in a circular.

The government last month 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.

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. 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.

Industrial output in the month of August 2011 rose a slower-than expected 4.1% from a year earlier, data released by the government on 12 October 2011 showed. Industrial output growth for July was revised upwards to 3.84% from a provisional reading of 3.28%. Manufacturing output, which constitutes about 76% of the industrial production rose an annual 4.5% in August versus 2.3% in July. The government also revised upwards the industrial production growth for May 2011 to 6.15% from 5.91% reported earlier.

The government recently raised its borrowing target for the current fiscal year by Rs 52800 crore, surprising the market and fueling worries that it may even overshoot the new estimate because of muted revenue growth amid a slowing economy and swelling subsidies. The government will borrow Rs 2.2 lakh crore during October 2011-March 2012 period, or the second half of the fiscal year, compared with the target of Rs 1.67 lakh crore announced in budget in February 2011. C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council on 29 September 2011 said it is going to be difficult to achieve fiscal deficit target of 4.6% of GDP for the year ending March 2012.

The government's new borrowing programme may crowd out private borrowers who come into the market in the second half of the year. Credit growth normally picks up after October every year when the busy season starts.

Atsi Sheth, a New York-based vice president and senior analyst at Moody's Investors Service said in a media interview recently that Moody's is unlikely to change its rating outlook on India for now, though the extent of the increase in the government's borrowing target is a surprise. The possibility of fiscal slippage is, however, already factored into the sovereign rating, Sheth said.

Standard & Poor's Ratings Services on 3 October 2011 said it is maintaining its view that India will struggle to meet its fiscal deficit target. Takahira Ogawa, director of Sovereign and International Public Finance Ratings at S&P said India must prove its intent to continue with the process of fiscal consolidation in the medium term.

The latest data showed that inflation in India remains uncomfortably high. Inflation, as measured by the wholesale price index (WPI), rose 9.72% in September 2011, compared with a 9.78% rise in August 2011, data released by the government on 14 October 2011, showed. WPI inflation for July 2011 was revised upwards to 9.36% from the provisional reading of 9.22%. Five out of nine economists polled by Capital Market before the latest WPI data expect a 25 basis points hike in repo rate from the Reserve Bank of India at its half-yearly review of the monetary policy on 25 October 2011. The rest four expect a status quo on rates.

Boosting farm output on a sustainable basis is the only long-term solution to address supply constraints and cool high commodity prices that have often hurt economic growth, Mukherjee said on Monday, 17 October 2011. Rangarajan on 14 October 2011 said that monetary policy has a role to play in containing demand pressures as long as inflation remains above 9%.

While its tolerance of inflation has gone up with rising income levels, the Reserve Bank of India (RBI) will raise rates further if high inflation persists, central bank deputy governor Subir Gokarn said on 12 October 2011. On the same day, RBI governor D Subbarao reiterated that controlling inflation is the main focus of monetary policy.

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.

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 September policy was softer than the previous policy announcement which was extremely hawkish.

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.

India's services sector contracted for the first time in more than two years as new business dried up and expectations weakened amid concern over a flagging world economy, a survey showed on 5 October 2011. The seasonally adjusted HSBC Markit Business Activity Index, based on a survey of around 400 firms, plunged in September to 49.8 -- its lowest reading since April 2009 -- and below the 50 mark which separates growth from contraction.

The slowdown in growth has continued to broaden with the service sector seeing a further slowdown in economic momentum, HSBC economist Leif Eskesen said. The new business sub-index sank to a 28-month low of 51.6 in September, down from 54.9 in August. The weak expansion in new business -- the main cause of the stagnation in activity -- meant employment levels fell for a third consecutive month. Despite harsh conditions firms were able to pass on rising input costs to customers, albeit at a slightly lower pace than in August.

The growth in manufacturing sector nearly stalled in September 2011, hitting its weakest spot since March 2009 on slowing output and orders growth following a series of interest rate hikes, data showed on 3 October 2011. The HSBC Markit India Manufacturing PMI fell more than two points to 50.4 in September 2011 from 52.6 in August 2011, very close to the 50 mark which divides growth and contraction. The output index plunged by its biggest amount in one month since November 2008, to 51.1 from 56.

Asian stocks fell on Thursday, 20 October 2011, as growing investor caution about taking risks ahead of a key European leaders' summit at the weekend weighed on riskier assets across the board and supported safe-haven government bonds. Key benchmark indices in China, Hong Kong, Indonesia, Japan, South Korea, Taiwan and Singapore fell by between 0.09% to 1.66%.

European Union leaders are meeting in Brussels this weekend for a closely watched summit. Investors are looking for more details from the meeting of plans to contain the euro zone sovereign debt crisis, particularly beefing up the rescue fund, a vehicle to guarantee national governments' sovereign debt issuance, although many believe a rapid solution is unlikely. The meeting is also expected to agree on a plan to recapitalise European banks. Plans to tackle the euro zone debt crisis have stalled with Paris and Berlin at odds over how to increase the firepower of the region's bailout fund, French President Nicolas Sarkozy said on Wednesday, 19 October 2011.

Greece parliament is expected to give a final green light late on Thursday, 20 October 2011, to a deeply unpopular austerity package needed to stave off bankruptcy.

US stocks fell on Wednesday, 19 October 2011, as traders, after sitting on their hands for most of the day, jumped to sell in a hair-trigger reaction to fresh reports underscoring that Europe remains far from a solution to its debt crisis. On Tuesday, stocks had rallied on late news suggesting euro zone leaders had a big package in place for rescuing indebted nations. Economic data showed US consumer prices outside food and energy rose at their slowest pace in six months while groundbreaking on new homes rose at the fastest rate in 1-1/2 years.