Market may extend recent strong gains on firm Asian stocks

The market may extend two-day 3.13% rally on mostly higher Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 6 points at the opening bell.

Market regulator the Securities & Exchange Board of India (Sebi) said on Tuesday allowed auctioning of securities through stock exchanges and introduced a new method for institutional placement of stocks. The move will help fund-raising by the government, which has so far been unable to meet its target of Rs 40000 crore from share sales in state-run firms this fiscal that ends in March.



As per the auctioning route, a special window can be used by promoter stakeholders to sell at least 1% of the paid-up capital of a company. This will be similar to the block-deal mechanism for secondary stock market transactions, but with lesser restrictions. Under the institutional placement programme (IPP), shares can be sold only to qualified institutional buyers.

Exchanges will provide a separate window for the offer for sale of shares which will co-exist with the normal trading hours. But, promoter or promoter group of companies will not be allowed to bid for the shares. Sebi also said the auction method can be only used by promoters of top 100 companies based on average market capitalisation for sale of their stakes. The regulator said the IPP method can be used to increase public holding by 10% and could be offered to only qualified institutional buyers with 25% being reserved for mutual funds and insurance companies. Issuers will have to announce an indicative floor price or price band at least one day before the opening of the offer.

A special trading session will be held on Saturday, 7 January 2012, as the National National Stock Exchange is upgrading the capacity of its Futures and Options trading system hardware and software. Trading will take place from 11:15 IST to 12:45 IST on that day. Trades done on Saturday, January 07, 2012, will be settled on Tuesday, 10 January 10, 2012, as a separate settlement, NSE said in a circular

Key benchmark indices advanced for the second day in a row to scale their highest closing level in more than one-week on Tuesday, 3 January 2012, on firm global stocks. The BSE Sensex rose 421.44 points or 2.72% to settle at 15,939.36, its highest closing level since 26 December 2011.

Foreign institutional investors (FIIs) bought shares worth Rs 255.39 crore on Tuesday, 3 January 2012, as per provisional data from the stock exchanges. FIIs had offloaded shares worth a net Rs 1287.84 crore in three trading sessions from 29 December 2011 to 2 January 2012, as per provisional data from stock exchanges.

PSU stocks will be in focus on reports the government is likely to give green signal to the proposal of the Department of Disinvestment (DoD) to help it raise Rs 40000 crore through innovative means like buyback and cross-holding of equities in central public sector enterprises (CPSEs). Among other things, the disinvestment department has also suggested promoting cross-holding of equities between CPSEs, which would help the government raise money without diluting its holding in such PSUs.

Starting off the New Year on a liberalisation note, the government on Sunday, 1 January 2012, announced its decision to allow Qualified Foreign Investors (QFIs) to directly invest in the Indian equity market from 15 January 2012. A QFI is an individual, group or association resident in a foreign country that is compliant with Financial Action Task Force (FATF) standards. QFIs include pension funds which normally tend to stay invested for a longer period of time. QFIs do not include FIIs/sub accounts. In August last year, the government allowed foreign investors to directly invest up to $13 billion in equity and debt schemes of mutual funds.

Qualified foreign investors, or QFIs, will now be able to invest individually up to 5% of the capital of the Indian company. Cumulatively, QFIs can invest up to 10% of the capital of the company being invested in. These limits are over and above the FII and NRI investment ceilings prescribed under the PIS route for foreign investment in India, a government statement said.

The next major trigger for the market is Q3 December 2011 corporate earnings, which will start tricking from the second week of January 2012. The focus will be on guidance from the company managements on outlook for the remaining part of the year and for the next year. Analysts expect weak Q3 December 2011 results due to lower volume growth in a slowing economy, higher raw material costs and higher interest charges.

IT bellwether Infosys and housing finance major HDFC report Q3 results on 12 January 2012. HDFC Bank and Bajaj Auto unveil Q3 results on 19 January 2012. Axis Bank unveils Q3 results on 20 January 2012. Dabur India unveils Q3 results on 31 January 2012. Mahindra & Mahindra unveils Q3 results on 7 February 2012.

India's manufacturing activity surged to a six-month high in December thanks to a spike in factory output and new orders from domestic and international firms, a survey of purchasing managers showed early this week. The HSBC Markit India Manufacturing PMI jumped to 54.2 from 51 in November, its biggest monthly rise since April 2009. The index has stayed above the 50 mark that separates growth from contraction for 33 months now.

The infrastructure sector output grew 6.8% in November from a year earlier, sharply higher than the annual growth of 3.7% in November last year, data released by the government early last week showed. The infrastructure sector accounts for 37.9% of India's industrial output.

India's November exports rose an annual 3.87% to $22.3 billion, while imports for the month rose 24.55% to $35.9 billion, the government said in a statement early this week. India's trade deficit in November was at $13.6 billion.

Food inflation rose at its slowest pace in more than five years in the third week of December 2011, bolstering hopes of a steady easing in overall price pressures which could prompt Reserve Bank of India to consider cut in interest rates to revive a slowing economy. Food inflation eased to 0.42% in the week ended December 17 from 1.81% in the preceding week, the Commerce & Industry Ministry said on 29 December 2011. Inflation in the Primary Articles group eased to 2.7% in the week under review, from 3.78% in the week ended December 10. Inflation in the Fuel & Power group stood at 14.37% in the week ended December 17, from 15.24% in the previous week.

The Reserve Bank of India is likely to begin easing monetary policy to address concerns about economic growth, Governor D Subbarao said in an interview to a foreign electronic media house, reiterating comments made by the RBI when it kept rates unchanged on 16 December 2011. At its mid-quarterly monetary policy review meet on 16 December 2011, the Reserve Bank of India (RBI) left its main lending rate unchanged in order to support faltering economic growth as inflation shows signs of cooling. While inflation remains on its projected trajectory, downside risks to growth have clearly increased, RBI had said in a statement on 16 December 2011. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth, RBI had said.

RBI had said inflation risks remain high and inflation could quickly recur as a result of both supply and demand forces. RBI also said that the rupee remains under stress. The timing and magnitude of further actions will depend on a continuing assessment of how these factors shape up in the months ahead, RBI said. The RBI has raised rates 13 times since March 2010.

Credit rating agency Moody's Investors Service on 14 December 2011 said that the sharp decline in the value of the Indian rupee against the dollar over the past few months is generally exerting only a moderate impact on rated Indian companies. Risks for companies holding large amounts of dollar denominated debt are also manageable in the near term, given that debt maturities are limited for this time frame, Moody's said in a new report. This means Indian companies rated by Moody's do not have a significant dollar outflow at a time when the Indian rupee is losing ground.

India may face the risk of stagflation if the government doesn't take urgent steps to tame inflation and stimulate growth, a parliamentary panel on finance warned on 22 December 2011. The Standing Committee on Finance blamed the Reserve Bank of India's 13 interest-rate increases over the past 21 months for stalling economic growth. "Measures taken by the government and the RBI so far have squarely failed to rescue the economy from unabated inflation. Instead, monetary measures initiated for this purpose have only resulted in worsening the condition of the economy further," the report said.

The budget for 2012/13 ending March will be presented after elections scheduled in five states, Finance Minister Pranab Mukherjee said on Monday, 2 January 2012. State elections are scheduled between the end of January and early March. The annual budget is usually presented on the last working day of February. The Election Commission on 24 December 2011 announced the dates for the assembly polls in Uttar Pradesh, Punjab, Uttarakhand, Manipur and Goa. Uttar Pradesh will have polling on February 4, 8, 11, 15, 19, 23 and 28, while Uttarakhand and Punjab will go to polls on January 30. Manipur will have polls on January 28 and Goa on March 3.

Asian stocks rose on Wednesday, as investor risk appetite returned after upbeat US and European economic data boosted global shares and commodities. Key benchmark indices in China, Indonesia Singapore, Japan, and Taiwan rose by between 0.11% to 1.16%. Key benchmark indices in Hong Kong and South Korea fell by between 0.21% to 0.34%.

Manufacturing activity in the UK continued to contract in December, but the pace slowed from the preceding month, according to a survey of purchasing managers released on Tuesday. The Markit/CIPS purchasing managers index (PMI) for the UK's manufacturing sector rose to 49.6 from a revised 47.7 in November. German unemployment fell sharply to the lowest in two decades. These data followed earlier figures showing Chinese manufacturing and service data topping forecasts, and the euro zone's purchasing managers index contracting less than it had been feared.

Wall Street stocks kicked off 2012 with a sharp rally on Tuesday after data showed US manufacturing activity and construction spending picked up, signaling the economic recovery was gaining steam. The pace of growth in the US manufacturing sector accelerated in December, its best month since June, while a rise in new orders suggested decent momentum in 2012. Separately, construction spending in November surged to a near 1-1/2 year high. The Federal Open Market Committee will release minutes from its December 13 meeting later in the global day today. The key US economic indicator due this week is the non-farm payrolls data for December 2011 due on Friday, 6 January 2012.