Sensex, Nifty settle at highest level in over 4 weeks on euro-zone bailout fund hopes

Good Q2 results from Hero MotoCorp and HDFC Bank helped key benchmark indices clock smart gains a day after the market fell 1.63% on Tuesday, 18 October 2011, on disappointing earnings from IT majors TCS and HCL Technologies. The barometer index BSE Sensex regained the psychological 17,000 level. The Sensex and the 50-unit S&P CNX Nifty reached their highest closing level in more than four weeks. The Sensex jumped 337.05 points or 2.01%, up close to 210 points from the day's low and off close to 20 points from the day's high. Gains for European shares triggered by hopes for progress on expansion of the euro zone's rescue fund, underpinned sentiment.



The Sensex has risen 631.58 points or 3.83% in this month so far. The index has slumped 3,423.75 points or 16.69% in calendar 2011. From a 52-week high of 21,108.64 on 5 November 2010, the Sensex has lost 4,023.30 points or 19.06%. From a 52-week low of 15,745.43 on 4 October 2011, the Sensex has risen 1,339.91 points or 8.5%.

Coming back to today's trade, all the 13 sectoral indices on BSE rose. The market breadth was positive. Index heavyweight Reliance Industries (RIL) gained nearly 3%. Another index heavyweight L&T jumped close to 4%. Shares of Hero MotoCorp jumped more than 4%, with the stock moving past Rs 2,000 level on strong Q2 results. Other auto stocks also gained after Hero MotoCorp's good Q2 earnings. Interest rate sensitive realty and banking stocks rose on hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause on rate increases next week. HDFC Bank jumped after reporting strong Q2 results.

The market opened on a firm note, tracking gains in Asian shares. The market extended initial gains to hit fresh intraday high in morning trade. The market strengthened further to hit fresh intraday high in mid-morning trade. The market trimmed gains in early afternoon trade after comments from additional secretary in the department of disinvestment, Sidhartha Pradhan, that ONGC's follow-on public offer will likely take place next month. The market regained strength in afternoon trade as European shares rose in early trade. The market remained firm in mid-afternoon trade. The market hit fresh intraday high in late trade.

The market shrugged off a likely pressure on secondary market liquidity in the near term due to the large ONGC follow-on public offer (FPO). The size of the ONGC FPO could be over Rs 11000 crore. It may be recalled that the government had deferred ONGC FPO in September 2011 due to weak market conditions. The government plans to divest 5% stake in ONGC through FPO.

The BSE Sensex surged 337.05 points or 2.01% to settle at 17,085.34, its highest closing level since 20 September 2011. The index jumped 358.70 points at the day's high of 17,106.99 in late trade. The index rose 126.05 points at the day's low of 16,874.34 in early trade.

The S&P CNX Nifty jumped 101.65 points or 2.02% to settle at 5,139.15, its highest closing level since 20 September 2011. The Nifty hit a high of a 5,148.05 in intraday trade. The Nifty hit a low 5,075.30 in intraday trade.

The BSE Mid-Cap index rose 1.35% and the BSE Small-Cap index gained 0.65%. Both these indices underperformed the Sensex.

BSE clocked turnover of Rs 1728 crore, lower than Rs 2200.43 crore on Tuesday, 18 October 2011.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1,684 shares rose and 1,151 fell. A total of 115 shares were unchanged. The breadth was much stronger earlier in the day.

All the shares from the 30-share Sensex pack rose.

Index heavyweight Reliance Industries (RIL) rose 2.72% on bargain hunting after a two-day decline triggered by weak Q2 operating performance. RIL's net profit rose 15.84% to Rs 5703 crore on 34.73% rise in turnover to Rs 80790 crore in Q2 September 2011 over Q2 September 2010. Operating profit rose just 5% to Rs 9844 crore in Q2 September 2011 over Q2 September 2010. The core operating profit margin (OPM) declined sharply to 12.5% in Q2 September 2011 from 16.3% in Q2 September 2010. The result was announced on Saturday, 15 October 2011. The company's gross refining margin (GRM) stood at $10.1 a barrel in Q2 September 2011, sharply higher than $7.9 a barrel in Q2 September 2010. The GRM was at 10.3 a barrel in Q1 June 2011.

RIL said its Infotel Broadband Services unit is in the process of setting up a 4G broadband wireless network and finalizing arrangements with global players.

RIL recently concluded a $7.2 billion deal with BP PLC under which it sold a 30% stake in 21 oil-and-gas exploration blocks to the British explorer. RIL said it has received all the payments that were due from BP, with the final installment of Rs 14690 crore received on 3 October 2011. It said all the production-sharing contracts under the deal with BP have been revised and submitted to the government for approval. "The integration process is currently under way, and the joint teams are evolving strategies to operate across the gas value chain in India from exploration, development, distribution and marketing," RIL said.

Meanwhile, Reliance Industries has neither confirmed nor denied media reports of a likely suspension of oil and gas drilling operations. RIL said after trading hours on Monday 17 October 2011 that RIL has always communicated any material event to the stock exchanges first before disseminating to the media. Media reports had suggested recently that RIL may suspend oil and gas drilling operations for an unspecified time until an internal valuation of its exploration and production strategy.

Sun Pharmaceuticals Industries jumped 3.09% after the company said it has sent a letter to its Israeli subsidiary Taro Pharmaceutical Industries' board of directors proposing acquisition by Sun Pharma, of all of the outstanding shares of Taro not held by Sun Pharma for per share consideration of $24.50 in cash, representing a 25.96% premium over the most recent closing price of Taro's common stock. This offer is subject to the approval of Taro board and such other authorities as may be required and subject to completion of necessary compliances/formalities as may be required, company added.

It may be recalled that Sun Pharma had acquired a controlling stake in Taro in September 2010 after completing an option agreement first entered into in 2007 with the controlling shareholders of Taro. Sun Pharma's subsidiaries subsequently increased their economic interest in Taro to 66%. Taro has an established franchise in dermatology and topical products in the US, in addition to other generic products. Taro has sales and marketing operations in Israel and Canada.

Metal stocks rose on bargain hunting after recent steep losses triggered by weak economic data in China. The latest data showed China's annual economic growth eased to 9.1% in the third quarter. China is the world's largest consumer of aluminum and copper. Jindal Saw, Sail, NMDC, Nalco, JSW Steel, Sterlite Industries, Hindalco Industries, Tata Steel gained by between 0.91% to 3.43%.

Jindal Steel & Power rose 2.68% after company announced after market hours on Tuesday that its consolidated net profit before exceptional items rose 8% to Rs 965.97 crore on 43.5% growth in turnover to Rs 4423.20 crore in Q2 September 2011 over Q2 September 2010. Net profit after exceptional items declined 0.27% to Rs 891.80 crore in Q2 September 2011 over Q2 September 2010. The company's power generation arm Jindal Power reported a net profit of Rs 409.84 crore on turnover of Rs 737.92 crore for Q2 September 2011.

Hindustan Zinc rose 2.11% after company announced during market hours today that net profit rose 41.73% to Rs 1344.69 crore on 26.74% rise in total income to Rs 3023.60 crore in Q2 September 2011 over Q2 September 2010.

Automobile stocks rose after strong Q2 results from two-wheeler major Hero MotoCorp. Hero MotoCorp jumped 4.13% after company announced after market hours on Tuesday that net profit rose 19.38% to Rs 603.62 crore on 28.06% growth in total net operating income to Rs 5829.32 crore in Q2 September 2011 over Q2 September 2010. The stock was the top gainer from the Sensex pack. The company's core operating profit margin or OPM surged to 15.76% in Q2 September 2011 from 13.35% in Q2 September 2010

The company said the total net operating income of Rs 5829.32 crore in Q2 September 2011 was a record quarterly figure. Hero MotoCorp said that with the company registering record sales of over 3 million units for six months period April-September 2011, it is comfortably placed to surpass the initial guidance of 6 million units for the year ending March 2012 (FY 2012).

Pawan Munjal, managing director and chief executive officer of Hero MotoCorp, said, "This performance has come despite the rising food inflation and fuel costs. These two areas remain a concern for the industry, as it might adversely impact consumer spending in the coming months. However, we remain confident of carrying forward the buoyancy in our sales. We expect our retail volumes to peak during the festive month of October, and in anticipation of rising market demand for our products in the coming months, we have been augmenting capacity at our existing plants".

India's largest tractor and utility vehicles maker Mahindra & Mahindra (M&M) rose 0.59%. M&M plans to raise monthly production of its new sport-utility vehicle--XUV500--by half to 3,000 units in January and more than double it to 5,000 units in June to meet robust local demand. The company currently produces 2,000 units of XUV500 a month. M&M recently said it has received more than 8,000 bookings for the vehicle in the first 10 days of the launch, forcing it to halt taking fresh orders.

M&M's total auto sales rose 25% to a record 44,137 units in September 2011 over September 2010. The company's domestic sales stood at 41,136 units during September 2011, as against 33,866 units during September 2010, an increase of 21%. M&M's Passenger Vehicles segment (which includes the Utility vehicles and Verito) registered a growth of 11%, having sold 19,447 units in September 2011, as against 17,537 units during September 2010. The 4-wheeler commercial segment which includes the passenger and load categories registered a phenomenal growth of 45%.

India's second largest bike maker by sales Bajaj Auto gained 1.74%. The company's total sales rose 18% to a record 4,17,686 units in September 2011 over September 2010. Motorcycle sales rose 18% to a record 3,71,208 units. Commercial vehicle sales rose 21% to 46,478 units in September 2011 over September 2010. The company said it achieved record three-wheeler sales in September 2011. Exports rose 39% to 1,41,913 units in September 2011 over September 2010.

India's largest truck maker by sales, Tata Motors rose 3.04% to Rs 186.65. The stock had fallen 3.64% to Rs 181.15 on Tuesday, 18 October 2011. Earlier, the stock had witnessed a solid rally on easing of euro-zone debt worries. From a recent low of Rs 147.25 on 4 October 2011, the stock had jumped 27.67% in eight trading sessions to settle at Rs 188 on Monday, 17 October 2011.

The company on Friday, 14 October 2011, said its global sales rose 24% to 1,07,258 units in Q2 September 2011 over Q2 September 2010. Global sales of Jaguar Land Rover were up 42% to 27,639 vehicles in September 2011 over September 2010. It said the total passenger vehicles sales stood at 55,539 units in September 2011, up 21% from the corresponding period last year. Commercial vehicles sales were up by 28% to 51,719 units in Q2 September 2011 over Q2 September 2010.

India's largest care maker by sales Maruti Suzuki India gained 1.23% after a news agency quoted an unnamed Maruti Suzuki India spokesman as saying that the car maker is making efforts to ramp up vehicle production at both its factories even as a strike by about 1,500 workers continues for the 13th day on Wednesday, 19 October 2011. The labor unrest at the factory at Manesar, in the northern state of Haryana, has severely hit vehicle production at the Suzuki Motor Corp. unit since Oct. 7. It has also extended the waiting period to several months for the Swift hatchback, of which Maruti has more than 100,000 customer orders.

The Manesar workers began their strike on Oct. 7 demanding the reinstatement of 44 colleagues who weren't taken back after the end of a 33-day dispute with management on Oct. 1. Maruti's management and Haryana government representatives held discussions with the Manesar workers on Monday and Tuesday. The striking workers were until Friday protesting inside the Manesar plant, halting production, but were evicted after a court ordered them not to protest within 100 meters of the plant.

Interest rate sensitive realty stocks rose on hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause on rate increases next week. Purchases of both residential and commercial property are largely driven by finance. HDIL, DLF, Indiabulls Real Estate, Unitech, Orbit Corporation, and Anant Raj Industries gained by between 1.11% to 8.45%.

Interest rate sensitive banking stocks rose on hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause on rate increases next week. India's largest private sector bank by net profit ICICI Bank gained 2.88%.

India's second largest private sector bank by net profit HDFC Bank rose 3%, extending a seven-day winning streak after the bank announced during market hours today that net profit rose 31.48% to Rs 1199.35 on 37.4% rise in total income to Rs 7929.38 crore in Q2 September 2011 over Q2 September 2010. The bank's total capital adequacy ratio (CAR) as at 30 September 2011 as per Basel II guidelines was at 16.5%, as against regulatory minimum of 9%. Tier I CAR was at 11.4% as at 30 September 2011.

HDFC Bank's portfolio quality as of 30 September 2011 remained healthy, with gross non-performing assets (NPA) at 1% of gross advances and net non-performing assets at 0.2% of net advances (as against 1.2% gross NPAs and 0.3% net NPA ratios as on 30 September 2010).

The bank's provisioning policies for specific loan loss provisions remained higher than the minimum regulatory requirements. The NPA provision coverage ratio (excluding write-offs, technical or otherwise) was at 81.3% as of 30 September 2011. Total restructured assets were 0.4% of the bank's gross advances as of 31 September 2011. Of these, restructured advances categorized as standard assets were 0.1% of the bank's gross advances.

HDFC Bank's CASA ratio stood at 47.3% as of 30 September 2011. The CASA (current and savings account) ratio is the ratio of deposits in the current and savings accounts of a bank to its total deposits. A high CASA ratio indicates that a higher portion of the banks' deposits come from current and savings accounts. This means that the bank is getting money at low cost, since no interest is paid on the current accounts and the interest paid on savings account is usually low.

India's largest bank by branch network State Bank of India (SBI) gained 2.99%, extending recent strong gains triggered by hopes of capital infusion from the Government of India, its majority shareholder. The finance ministry on Tuesday, 18 October 2011, ruled out a rights issue for SBI in this financial year. However, it assured the lender that its capital requirements would be met by March 31, 2012.

Among other state-run banks, Punjab National Bank, Bank of Baroda, and Bank of India rose by between 0.52% to 1.92%.

The finance ministry will have to opt for supplementary demand for grants to meet the capital needs of five-six public sector banks, including SBI, in the current financial year. This capital is pegged at Rs 10000 crore to Rs 20000 crore in this financial year, against Rs 6000 crore provided in the Union Budget 2011-2012.

The government last week approved amendments to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and debt recovery acts to enable banks to effectively deal with the menace of bad loans and also encourage them to disburse credit freely to home and corporate loan seekers. The Cabinet approved the introduction of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011, in the next Winter Session of Parliament.

Information and Broadcasting Minister Ambika Soni said that suggested amendments will strengthen the ability of banks to recover debts due from the borrowers, enhance the ability of banks to extend credit to both corporate and retail borrowers, reduce the cost of funds for banks and their customers and reduce the level of non-performing assets.

State-run oil exploration major ONGC rose 1.8% after the additional secretary in the department of disinvestment, Sidhartha Pradhan, today, 19 October 2011, said that ONGC's follow-on public offer will likely take place next month. It may be recalled that the government had deferred ONGC FPO in September 2011 due to weak market conditions. The government plans to divest 5% stake in ONGC through FPO.

The government aims to raise Rs 40000 crore through the sale of stakes in state-run companies this fiscal year through March 2012 (FY 2012), but it has been able to raise only about Rs 1145 crore so far amid weak market conditions.

India's largest IT company by sales, TCS, rose 1.47% on bargain hunting after Tuesday's 7.71% slide triggered by disappointing Q2 results, which the company announced after market hours on Monday, 17 October 2011. TCS chief financial officer and executive director S Mahalingam on Tuesday, 18 October 2011, said that TCS will cut costs and focus on high-margin services to maintain its profitability in the traditionally weak October-December quarter.

TCS' consolidated net profit fell 4.7% to Rs 2301 crore on 7.7% growth in revenue to Rs 11633 crore in Q2 September 2011 over Q1 June 2011. The company's operating profit rose 11.4% to Rs 3143 crore in Q2 September 2011 over Q1 June 2011. Commenting on the results TCS Chief Executive Officer and Managing Director N Chandrasekaran said, "Our domain-rich solutions and disciplined execution helped us capture business across major markets and deliver stellar growth in international revenues. We see strong momentum for our full services strategy from customers who are looking for agility and growth. We have created a nimble organization on the ground to stay close and stay relevant to our customers as there are ambiguities in the external environment in the short term".

Commenting on the results Mahalingam had said on Monday that TCS continues to make the necessary investments to support the future business growth in different markets as the company remains in expansion mode. "We are also working to optimize our cost structure and keeping a close watch on economic signals. Given the breadth of our global operations across 45 countries, the recent unprecedented volatility in the foreign currency markets is fresh cause for concern," Mahalingam had said on Monday.

HCL Technologies rose 1.55% on bargain hunting after Tuesday's 8.58% slide triggered by disappointing Q1 results. Consolidated net profit as per US accounting standards fell 2.7% to Rs 496.70 crore on 8.2% increase in revenue to Rs 4651.30 crore in Q1 September 2011 over Q4 June 2011.

Commenting on the results, Vineet Nayar, Vice Chairman and CEO, HCL Technologies said, "We have doubled our quarterly revenues in just three years to record a billion dollar quarter despite the tough economic environment. This tremendous momentum has been achieved thanks to our Employees First philosophy which has fuelled a high performance organization, ensured enhanced customer delight and created disruptive thought leadership which is today recognized globally. I want to thank all our 80,520 employees, more than 500 customers, investors and partners who have supported us in this journey".

Anil Chanana, CFO, HCL Technologies said, "We continue to see growth both in revenue and earnings. Our revenues grew 5.1% sequentially in constant currency and 25% YoY this quarter, accompanied by operating and net income growth of 38% YoY and 49% YoY, respectively. While the currency markets continue to be volatile, we at HCL follow layered hedging program to cover our foreign currency exposure".

Infosys rose 0.89%, extending recent strong gains triggered by good Q2 results and upward revision in full year earnings guidance. Infosys' consolidated net profit as per International Financial Reporting Standards (IFRS) rose 10.68% to Rs 1906 crore on 8.2% growth in revenue to Rs 8099 crore in Q2 September 2011 over Q1 June 2011. The company announced the results on 12 October 2011.

Infosys has forecast 9.72% to 11.11% growth in non-annualized earnings per American Depositary Share at $0.79 to $0.80 in Q3 December 2011 over Q2 September 2011. It has forecast 3.2% to 5.3% growth in revenue at $1.802 to $1.84 billion in Q3 December 2011 over Q2 September 2011.

The company has for the second quarter in a row revised upwards its dollar earnings guidance for the year ending March 2012 (FY 2012). The company expects 15.3% to 16.8% growth in earnings per American Depositary Share at $3.02 to $3.06 in FY 2012 over the year ending March 2011 (FY 2011). However, the company has revised downwards dollar revenue growth guidance for FY 2012. The company expects 17.1% to 19.1% growth in revenue at $7.08 billion to $7.20 billion in FY 2012 over FY 2011.

India's third largest software services exporter Wipro gained 3.23%, snapping losses in preceding two trading sessions. The company announces its Q2 results on 31 October 2011.

Consumer durables stocks, too, gained in firm market. Videocon Industries, Blue Star, and Titan Industries rose by between 0.54% to 0.62%.

Power stocks rose across the board. NTPC, Power Grid Corporation of India, Tata Power Company and Reliance Infrastructure rose by between 0.2% to 1.65%.

Capital goods stocks rose on bargain hunting after recent losses. BEML, L&T, Bhel, Siemens, Praj Industries, ABB rose by between 0.63% to 3.44%.

Crompton Greaves slumped 12.23% after consolidated net profit declined 45.38% to Rs 116.66 crore on 12.66% increase in total income to Rs 2727.03 crore in Q2 September 2011 over Q2 September 2010.

FMCG stocks rose on expectations of higher rural sales after good rains this year. ITC, Britannia Industries, Hindustan Unilever, United Spirits, Dabur India, and Marico gained by between 0.33% to 2.29%.

Sugar stocks gained on firm sugar prices. Bajaj Hindusthan, Balrampur Chini and Shree Renuka Sugars rose by between 0.54% to 3.29%.

Taksheel Solutions clocked highest volume of 3.76 crore shares on BSE. Flexituff International (1.75 crore shares), Cals Refineries (47.83 lakh shares), Resurgence Mines (47.78 lakh shares) and Crompton Greaves (30.58 lakh shares) were the other volume toppers in that order.

Flexituff International clocked highest turnover of Rs 291.66 crore on BSE. Taksheel Solutions (Rs 210.27 crore), SBI (Rs 74.22 crore), Onelife Capital (Rs 54.62 crore) and Crompton Greaves (Rs 44.01 crore) were the other turnover toppers in that order.

Finance Minister Pranab Mukherjee today, 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.

Bajaj Auto, Cairn India, UltraTech Cement, Exide Industries and Thermax unveil quarterly results tomorrow, 20 October 2011. Engineering & construction major L&T, Idea Cellular, paints major Asian Paints, JSW Steel and Godrej Consumer Products reveal Q2 results on Friday, 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 reports Q2 results on 3 November 2011. Bharti Airtel unveils Q2 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) unveils Q2 results on 11 November 2011. 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.

Banks led European shares higher on Wednesday, 19 October 2011, after reports that German and French officials had agreed on expanding the sovereign bailout fund to 2 trillion euros ($2.8 trillion). While officials reportedly denied such a deal, prospects of progress were still shoring up several European banks. Key benchmark indices in UK, France and Germany were up by 1.14% to 1.54%.

European Union leaders are meeting in Brussels this weekend for a closely watched summit.

Moody's, one of the big three ratings agencies, on Tuesday cut Spain's sovereign ratings by two notches, saying high levels of debt in the banking and corporate sectors leave the country vulnerable to funding stresses. The latest step followed Moody's warning on Monday over risks for France to maintaining its top credit rating.

Asian shares rose on Wednesday, tracking a late-session advance in the US after an unconfirmed report that Europe's key bailout fund would be expanded by close to $2.5 trillion. Key benchmark indices in Hong Kong, Indonesia, Japan, South Korea, and Singapore rose by between 0.35% to 1.75%. Key benchmark indices in China, Singapore and Taiwan were down by 0.08% to 0.25%.

Trading in US index futures indicated that the Dow could gain 40 points at the opening bell on Wednesday, 19 October 2011. US stocks surged in late trading on Tuesday as buyers latched onto another report of agreements to strengthen the euro zone's rescue fund to bid up stocks aggressively. Data on US homebuilder sentiment was strong, signaling improvement in the housing market.