Market likely to open lower on weak Asian stocks

The market may drift lower in opening trade on weak Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 51.50 points at the opening bell.

Foreign institutional investors (FIIs) sold shares worth a massive Rs 1636.08 crore in a single trading session on Thursday, 24 November 2011, as per the provisional data from the stock exchanges. FIIs have pressed heavy sales of Indian stock recently. Their outflow totaled Rs 6483.66 crore in eight trading session from 15 to 24 November 2011, as per data from the stock exchanges.



Shares of organized retailers -- Trent, Pantaloon Retail India, and Shoppers Stop may extend their recent rally after the Union Cabinet on Thursday, 24 November 2011, cleared a proposal to allow 51% foreign direct investment (FDI) in multi-brand retail and increase in FDI in single brand retail to 100% from current 51%. Currently, the country allows 51% FDI in single brand retail and 100% FDI in cash and carry format of the business. The move to liberalize FDI norm in retails signals that the Indian government, after years of prevaricating over allowing greater foreign investment in several sectors, is now serious about attracting overseas funds. Foreign direct investment in India dropped 28% to $29.4 billion in the year ended 31 March 2011 as the country's economic forecast clouded.

Further opening the retail market--and the message that sends about the government's willingness to introduce reforms--might help kick-start the economy and shore up faltering investor sentiment. The government is likely to announce the details of the new FDI norms in retail in Parliament today, 25 November 2011.

The liberal FDI norms in retail may come with conditions: Recent government proposals had suggested that foreign investors may have to invest at least $100 million to set up multi-brand retail operations, and that at least $50 million of that must be invested in back-end operations such as food-processing units and warehouses, as well as a supply chain, among other things. There could also be restrictions on where retailers can set up shop--for instance, limiting their presence to cities with a population of more than one million people.

Key benchmark indices edged higher on Thursday, 24 November2011, after the latest data showed that food inflation eased in the year through 12 November 2011. The BSE Sensex jumped 158.52 points or 1.01% to settle at 15,858.49, its highest closing level since 22 November 2011. The rebound came after a recent steep slide. From a recent high of 17569.53 on 8 November 2011, the Sensex had tumbled 1869.56 points or 10.64% in ten trading sessions to 2-year closing low of 15,699.97 on Wednesday, 23 November 2011.

The Union Cabinet on Thursday 24 November 2011 approved the Companies Bill, 2011, which aims to update corporate laws in the country and introduce modern concepts. Intended to replace the existing half-a-century-old Companies Act, the Bill has undergone several modifications in view of the Rs 14000-crore Satyam Computer accounting fraud. Following Cabinet clearance, it is now likely to be taken up for consideration and passage in the ongoing winter session of Parliament. Besides strengthening the provisions to check fraud, the Bill has introduced ideas like mandatory corporate social responsibility (CSR), class action suits and a fixed term for independent directors.

Among other things, it also proposes to tighten laws for raising money from the public. The Bill also seeks to prohibit any insider trading by company directors or key managerial personnel by treating such activities as a criminal offence. Further, it has proposed that companies should earmark 2% of their average profits of the preceding three years for CSR activities and make a disclosure to shareholders about the policy adopted in the process.

The Securities and Exchange Board of India (Sebi) on Thursday, 24 November 2011, tightened rules governing the issuance of warrants allotted along with public and rights offerings in a bid to prevent their misuse. Sebi said it has decided to specify a maximum tenure of 12 months for such warrants. Currently, Sebi regulations for public and rights offerings don't specify any tenure for warrants. The regulator added that the issuer of the public or rights offering will also have to disclose how the funds raised would be used, both in the offer document and on an ongoing basis. The regulator also decided to prescribe a minimum allotment size of Rs 5 crore to anchor investors during a share sale, and the maximum number of anchor investors allowed, in slabs. It didn't specify what the slabs would be.

A latest government statement in parliament dashed hopes of a relief in securities transaction tax (STT). Junior finance minister S.S. Palanimanickam on Wednesday, 23 November 2011, said the government has no proposal to lower the securities transaction tax (STT). There has been a speculation that the government will reduce STT in Union Budget 2012-2013 in a bid to revive sagging volumes on the bourses. Palanimanickam said in a written reply to Rajya Sabha that the securities transaction tax receipts had declined by around 18% to Rs 2960 crore during the first six months in the current fiscal year from a year ago period.

Corporate earnings have been weak. The combined net profit of a total of 3,866 companies declined 36.1% to Rs 67424 crore on 20.5% growth in sales to Rs 1142463 crore in Q2 September 2011 over Q2 September 2010.

Food price index rose 9.01% and the fuel price index climbed 15.49% in the year to 12 November 2011, government data on Thursday, 24 November 2011, showed. In the previous week, annual food and fuel inflation stood at 10.63% and 15.49%, respectively. The primary articles price index was up 9.08%, compared with an annual rise of 10.39% a week earlier.

Over the past few weeks, the government has taken some steps to encourage foreign investment. It raised the amount of government bonds that foreigners can hold and the amount of corporate debt they can hold by $5 billion each, to $15 billion and $20 billion respectively. The Union Cabinet also recently approved a pension overhaul that is expected to have a provision added allowing foreign pension-management companies to hold up to 26% of Indian joint ventures, from zero today.

The Reserve Bank of India (RBI) on Tuesday, 22 November 2011, eased rules for overseas investors in infrastructure debt funds, allowing foreign buyers to purchase bonds issued by such funds. Foreign investors can now buy either local or foreign currency bonds issued by infrastructure debt funds, provided they hold them for three years, the Reserve Bank of India said in a statement. Under broad guidelines for infrastructure funds issued in June this year, a fund may be set up either as a trust or a company. Overseas investors were previously allowed to invest in infrastructure debt funds that were set up as a trust.

The central bank also said that foreign investors other than non-resident Indians can't collectively invest more than $10 billion in such funds. The limit of $10 billion is within the $25 billion cap on overseas investment in infrastructure sector bonds, or infrastructure finance firms.

The RBI on Wednesday, 23 November 2011, eased rules on overseas borrowings by Indian firms by raising the cap on the total cost of some such loans, in a move that could allow lower-rated firms to more easily tap offshore funds. Local firms can now raise external debt at a total spread of up to 3.5 percentage points over the London Interbank Offered Rate, or Libor, for overseas loans with a maturity of between three and five years, the Reserve Bank of India said in a notice. The previous cap was 3 percentage points over Libor. The total cost cap on loans with a maturity of more than five years, however, remains the same at 5 percentage points over Libor, the release said.

The new cost ceiling will be applicable immediately, and will be valid up to 31 March 2012. The RBI also noted that any funds raised through such overseas loans must be brought back into India immediately, unless meant for use offshore.

The RBI on Wednesday, 23 November 2011, also eased rules on currency swap hedges by companies, removing a cap on the net supply of foreign currency a bank can add to the market as a result of such swaps. The move will help banks sell more currency swaps to companies with overseas debt, to help them cope with the volatile currency market.

The Reserve Bank of India (RBI) recently announced its first government bond buyback under its open-market-operations program this year, in a move aimed at easing liquidity in the cash-strapped banking system. The central bank said late on Tuesday, 22 November 2011, that the buyback operations will include the old 10-year benchmark bond, the 7.80% 2021. The other papers in the buyback on Thursday, 24 November 2011, are: 7.99% 2017 bond, 7.83% 2018 bond and the 8.13% 2022 bond.

Monetary policy has a limited role in curbing food price pressures in India but such action may still be warranted if high food inflation persists, the central bank governor said Tuesday, 22 November 2011. "A lasting solution to food price pressures lies in a supply response that raises agricultural production and productivity, improves supply chain management and sets the right incentive framework for both producers and consumers," D Subbarao said, according to a copy of his speech at a conference released by the Reserve Bank of India.

Subbarao said that the supply measures taken to meet the growing demand for protein-rich foods have been inadequate. Food prices have been hovering at their highest levels in several months due to sustained demand from the growing middle class that is increasingly consuming more of high-protein diets like milk, fish and meats, offsetting price decline in other commodities.

RBI announced a 25 basis points hike in its key policy rate viz. the repo rate to 8.5% after half-yearly review of the monetary policy on 25 October 2011. The central bank cut its GDP growth forecast for the current fiscal year through March 2012 to 7.6% from 8% earlier. But it retained its March-end inflation projection of 7%. RBI said the projected inflation trajectory indicates that the inflation rate will begin falling in December 2011 (January 2012 release) and then continue down a steady path to 7% by March 2012. It is expected to moderate further in the first half of 2012-13. This reflects a combination of commodity price movements and the cumulative impact of monetary tightening. Further, moderating inflation rates are likely to impact expectations favourably.

Most Asian shares declined on Friday as European officials failed to soothe investor fears that euro zone crisis could trigger a credit crunch. The key benchmark indices in China, Hong Kong, Indonesia, Malaysia, Singapore and South Korea were down by between 0.39% to 1.05%. Key benchmark indices in Taiwan and Japan rose 0.11% and 0.10%, respectively.

HSBC's preliminary China manufacturing survey fell to a 32-month low in November 2011, with the reading signaling the sector is now contracting. The Purchasing Managers Index printed at 48 on a 100 point scale, reversing from a mildly expansionary reading of 51 in October, data showed on Wednesday, 23 November 2011. The index provides a non-government view on how China's economy is faring.

HSBC economist Hongbin Qu said the data implied that industrial production will moderate to annualized growth rates of 11% to 12% in the coming months amid cooling domestic and external demand. However, he said there was little in the data to suggest a major contraction was underway in China.

US markets remained closed on Thursday, 24 November 2011, for the Thanksgiving Day holiday. US markets are open for half-day today, 25 November 2011.

Fitch Ratings said late on Monday, 21 November 2011, that it would conclude a review of US sovereign credit ratings by the end of November, in light of the congressional super committee's failure to reach a bipartisan deal to cut the federal debt. Fitch cited its previous statement in August that "failure by the super committee to reach agreement would likely result in a negative rating action -- most likely a revision of the rating outlook to negative, which would indicate a greater than 50% chance of a downgrade over a two-year horizon." It said a one-notch downgrade was possible but "less likely."

S&P reaffirmed it will keep its US rating at AA+ after stripping the government of its top AAA grade on 5 August 2011. Moody's retained its AAA rating on US with a negative outlook.