Market seen opening lower on weak global cues

The market is geared for a negative start amid weak global cues. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 53.50 points at the opening bell. Asian shares fell on Wednesday, 23 November 2011, after a disappointing manufacturing survey from China and a weaker-than-expected estimate of US economic growth.

The market is likely to remain volatile in the immediate future as traders roll over positions in futures & options (F&O) segment from the near-month November 2011 series to December 2011 series. The near-month November 2011 F&O contracts expire tomorrow, 24 November 2011.



Reliance Industries (RIL) will be in focus after reports indicated that the government has refused to recognize six discoveries made by it in its D-6 block saying the claims were not backed by prescribed tests, dealing a blow to the company's plan to boost sagging production by developing new fields in the block.

Aviation stocks could also be in focus after the aviation ministry reportedly moved a draft Cabinet note on allowing 26% foreign direct investment (FDI) by foreign airlines in the domestic carriers.

Foreign institutional investors (FIIs) sold shares worth Rs 952.68 crore on Tuesday, 22 November 2011, as per the provisional data from the stock exchanges. Their outflow totaled Rs 3661.17 crore in six trading session from 15 to 22 November 2011, as per data from the stock exchanges.

Key benchmark indices snapped an eight-session losing streak on Tuesday, 22 November 2011, as bargain hunting emerged after a recent steep slide in share prices. The BSE Sensex jumped 119.32 points or 0.75% to settle at 16,065.42, its highest closing level since 18 October 2011.

Corporate earnings have been weak. The combined net profit of a total of 3,827 companies declined 36.1% to Rs 67529 crore on 20.5% growth in sales to Rs 1141038 crore in Q2 September 2011 over Q2 September 2010.

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 Winter Session of Parliament got off to a bumpy start on Tuesday, 22 November 2011, as a resurgent opposition-forced adjournment of both the houses for the day. The government has reported reached an agreement with the Left parties on holding a discussion on price rise on Wednesday, 23 November 2011, under Rule 168, which entails no voting. The Lok Sabha will discuss Finance Minister Pranab Mukherjee's claim of inflation coming down to 6-7% by March.

Among key financial Bills pending before Parliament in the current winter session is the Pension Fund Regulatory and Development Authority (PFRDA) Bill 2011, which will provide the regulatory authority statutory powers, including that to take punitive action on violations. The interim PFRDA authority, at present, is not backed by a statutory mandate.

Among other bills, the Judicial Standards and Accountability Bill is the cornerstone of the judicial reforms much touted by the government. Its intent is to bring about disclosure of assets for all high court and Supreme Court judges and lay down a 'code of conduct'. Thereby, judges can be probed over corruption allegations as that would be a violation of their code of conduct.

Among other important Bills lined up is the National Advisory Council-backed National Food Security Bill. Issues such as the extent of coverage of such food security, the amount of subsidy and the role of the PDS in such a system will be the aspects likely to be debated. The sports ministry-led National Sports Development Bill and the Nuclear Regulatory Authority Bill are among the 23 new Bills listed for introduction.

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 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.

Emerging markets such as India must take measures to boost long-term foreign direct investment to blunt volatility in exchange rates, and any capital control measures must be selective and temporary, a senior executive of the Asian Development Bank said on 14 November 2011. While capital flows and exchange rates are likely to be volatile in the short-term amid ongoing euro-zone debt concerns, India must focus on improving its investment climate by providing better infrastructure, putting in place a coherent manufacturing policy and developing financial markets, Managing Director General Rajat M. Nag said on the sidelines of the India Economic Summit.

Asian shares dropped on Wednesday, 23 November 2011, after a disappointing manufacturing survey from China and a weaker-than-expected estimate of US economic growth. Key benchmark indices in Singapore, Hong Kong, Indonesia, South Korea, China and Taiwan were down by between 0.76% to 2.02%. Japanese markets are closed today for a holiday.

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. 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.

The weak Chinese manufacturing data added to other negative cues for Asian markets, after European bourses ended lower on Tuesday, 22 November 2011, following an expensive bond auction for Spain.

Standard & Poor's Ratings Services (S&P) on Tuesday said Spain's AA-minus credit rating wasn't affected by the results of Sunday's general election, which saw the opposition center-right Popular Pary win an absolute majority. S&P also maintained its negative outlook on the country's ratings. The ratings firm said the clear majority won by the Popular Party "could facilitate front-loaded implementation of reform measures." S&P noted that weak economic growth prospects due to private-sector debt reduction, high unemployment and rigid labor markets, along with significant, net external debt, have "constrained" Spain's credit ratings

Moody's Investor Services warned on Monday, 21 November 2011, that rising French borrowing costs and an uncertain outlook posed an ongoing threat for the country's AAA credit rating. French government bond yields ticked higher on Monday.

US stocks declined on Tuesday after the Commerce Department cut its estimate of third-quarter gross domestic product growth to 2% from an earlier reading of 2.5%. The Dow Jones Industrial Average fell 53.59 points, or 0.46%, to 11493.72. The Standard & Poor's 500-stock index declined 4.94 points, or 0.41%, to 1188.04 and the Nasdaq Composite lost 1.86 points, or 0.07%, to 2521.28.

Minutes out on Tuesday, 22 November 2011, from the Federal Reserve Open Market Committee meeting held on 2 November 2011, at which the central bank held interest rates unchanged and decided to continue its "Twist" program, showed that one member argued for further bond purchases.

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.