Market may open higher on firm Asian stocks; RBI's policy review in focus

The market may open higher on firm Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 22.50 points at the opening bell.

With inflation remaining at uncomfortably high level, the Reserve Bank of India (RBI) is seen delivering another rate hike at its half-yearly review of the monetary policy today, 25 October 2011. A 25 basis points hike in repo rate is expected from the central bank tomorrow. The annual rate of inflation in the food space increased in early October while inflation in the fuel group also edged up, data released by the government showed recently.



Interest rate sensitive banking, auto and realty stocks will be in action ahead of RBI's half-yearly review of the monetary policy today, 25 October 2011.

Among prominent results, NTPC, Kotak Mahindra Bank and Dr. Reddy's Lab unveil Q2 results today, 25 October 2011.

GAIL (India) announced after market hours on Monday that net profit rose 18.5% to Rs 1094.41 crore on 18.89% rise in total income to Rs 9842.40 crore in Q2 September 2011 over Q2 September 2010.

Stocks may remain volatile today, 25 October 2011, as traders roll over positions in the futures & options (F&O) segment from the near-month October 2011 series to November 2011 series. The near-month October 2011 derivatives contracts expire today, 25 October 2011.

Key benchmark indices edged higher on Dhanteras, which marks the beginning of Diwali festivities, on Monday, 24 October 2011 snapping a two-day losing streak, on news that euro-zone leaders are making progress toward agreeing measures to tackle the sovereign debt crisis. The BSE Sensex was up 153.64 points or 0.92% to 16,939.28, its highest closing level since 19 October 2011.

Foreign institutional investors (FIIs) bought shares worth of Rs 101.10 on Monday, 24 October 2011, as per provisional figures on stock exchanges. FII outflow totaled Rs 1005.65 crore in four trading sessions from 18 October to 21 October 2011. FIIs have sold shares worth a net Rs 1,444.69 crore so far this month and Rs 20,979.15 crore so far this calendar year 2011, as per data from the stock exchanges.

A special Muhurat trading session is being held from 16:45 IST to 18:00 IST on Wednesday, 26 October 2011 on account of Diwali. There is no regular trading session on that day. The market also remains closed on Thursday, 27 October 2011 on account of Diwali, the festival of lights.

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

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), Bank of Baroda, NMDC and BPCL unveil Q2 results on 31 October 2011

Cement majors ACC and Ambuja Cements, Punjab National Bank, HPCL and Aditya Birla Nuvo unveil quarterly results on 1 November 2011. Sun TV Network, Ashok Leyland and TVS Motor report Q2 results on 3 November 2011. ONGC, 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, Indian Oil Corporation, GMR Infrastructure and Power Finance Corporation unveil quarterly results on 9 November 2011. Hindalco and Mahindra Satyam unveil Q2 results on 10 November 2011. Jet Airways (India) and Tata Chemicals unveil Q2 results on 11 November 2011. Coal India and Shipping Corporation of India report Q2 results on 12 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.

Finance Minister Pranab Mukherjee on 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.

The falling rupee could bloat India's already mammoth import bill and further strain government finances as the fuel subsidy burden swells, Finance Secretary R.S. Gujral said Friday, 21 October 2011. The rupee hit a near 30-month low below 50 against the dollar on Friday, 21 October 2011. Elevated crude oil prices are likely to push the government to spend an additional Rs 40000 crore on fuel subsidies in the current year.

Meanwhile, the new takeover code regulations notified by the market regulator Sebi last month became effective from Saturday, 22 October 2011. With these rules coming into force, both promoter and public shareholders of a listed company would now get the same price for their shares being purchased by an acquirer. At the same time, an acquirer would have to make an open offer for purchase of a minimum 26% stake from public shareholders, as against 20% earlier.

The new rules would also help the listed companies to get more investment from private equity players and other investors who are not interested in a takeover, as the trigger point for an open offer has been raised to 25%, from 15% earlier. Now, an entity needs to make an open offer only if its holding reaches threshold limit of 25%, as against 15% earlier. The new regulations replace the takeover rules that were in force since 1997

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.

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.

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 17 October 2011.

The Reserve Bank of India on Monday, 24 October 2011, said in its second quarter review of Macroeconomic and Monetary Developments that the inflation challenge remains significant in India. RBI said high inflation is likely to persist over next couple of months before moderating as falling global commodity prices so far has been offset by rupee depreciation. Incomplete pass-through is likely to limit the impact of falling global commodity prices. Financialisation of commodities leaves future commodity price path uncertain, RBI said in a statement.

The central bank said domestic price pressures still remain significant and broad-based. Food inflation is likely to stay elevated due to demand-supply mismatches in non-cereals and large minimum support price (MSP) revisions from the government. The central bank said real wage inflation has extended into Q1 June 2011.

As per RBI's current assessment, GDP growth in 2011-12 is likely to moderate slightly from that projected earlier. Agriculture prospects remain encouraging with the likelihood of a record Kharif crop. However, moderation is visible in industrial activity and some services, RBI said. With the increasing linkage of domestic industrial growth with global industrial cycle, some further moderation is likely ahead, given the weak global purchasing managers indices (PMIs), RBI said. Capacity constraints seem to be easing in some manufacturing segments, especially cement, fertilizers and steel, RBI said. Construction activity has slowed and leading indicators suggest that going forward, services growth may slightly weaken.

The central bank said investment demand is softening as a result of combination of factors including monetary tightening, hindrances to project execution, deteriorating business confidence and slowing global economy. The pipeline of investment is likely to shrink, putting growth in 2012-13 at risk, RBI said. Corporate sales growth continues to be healthy, but profits are under pressure.

RBI said fiscal slippages during 2011-12 may complicate the task of aggregate demand management. Key to growth sustainability lies in supporting investment by rebalancing demand from government consumption to public and private investment. External sector outlook, although stable, warrants close monitoring, the central bank said. Capital flows are entering an uncertain phase with increased financial stress and worsening global growth prospects.

In the context of monetary and liquidity conditions, RBI said that monetary transmission from an effective increase of 500 basis points (bps) in policy rates and a 100 bps increase in the cash reserve ratio (CRR) effected since February 2010 is still unfolding and real interest rates remain low and non-disruptive to growth.

Asian shares rose on Tuesday, keeping gains from the previous day as investors grew more confident about European leaders coming to a broad agreement to contain the region's debt crisis. Key benchmark indices in Singapore, Hong Kong, Taiwan and Indonesia were up by between 0.06% to 0.28%. Key benchmark indices in China, Japan and South Korea fell by between 0.27% to 0.53%.

On Monday, global stocks hit a seven-week high and commodities rallied on hopes Europe was moving closer to resolving the debt crisis.

European policymakers neared a deal over the weekend on bank recapitalization, and euro zone officials said France and Germany were close to agreement on how to use the European Financial Stability Facility to stave off contagion in the bond market. But deep divisions over the extent of losses that private holders of Greek bonds would have to accept remain a huge risk and final decisions were deferred until a second summit scheduled for Wednesday, putting a cap on markets.

U.S. stocks rose on Monday, as a flurry of merger activity and strong earnings from Caterpillar boosted investor sentiment and kept the three-week rally intact.