Market may open flat to slightly higher; retail stocks in focus

The market may open flat to slightly higher as most Asian stocks edged higher. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 4 points at the opening bell. The Indian government notifying 100% foreign direct investment (FDI) in single-brand retail may further boost sentiment.

Key benchmark indices surged to attain their highest level in 4-1/2 weeks on Tuesday, 10 January 2012 as firm global stocks boosted sentiment. The market sentiment was also boosted by media reports that state governments in India have given their in-principle approval to a proposed national goods and service tax (GST), raising hopes that the ambitious tax reform could be included in the upcoming budget. The BSE Sensex jumped 350.37 points or 2.22% to settle at 16,165.09, its highest closing level since 9 December 2011.



Foreign institutional investors (FIIs) bought shares worth Rs 324.32 crore on Tuesday, 10 January 2012, as per provisional data from the stock exchanges. FIIs have bought shares worth a net Rs 951.57 crore so far in January 2012, as per provisional data from the stock exchanges.

Retail stocks will be in focus after the government enacted an order fully opening the country's single-brand retail sector to foreign investment. The move gives greater access to companies like Nike but doesn't lift barriers for multibrand retailers, such as Wal-Mart. Foreign retailers that want to invest beyond the previous cap of 51% ownership will need to source 30% of their goods from small and village industries, said the government, which faces five state elections in the next few months.

State governments in India have reportedly given their in-principle approval to a proposed national goods and service tax (GST), raising hopes that the ambitious tax reform could be included in the upcoming budget. Finance ministers from different states agreed to the central government's GST proposal, but specified a list of services, such as luxury and entertainment, that would remain taxed at the state level. The GST will cut business costs and boost government tax revenue, but has missed several deadlines for implementation due to resistance from states that fear a loss of fiscal autonomy and the main opposition Bharatiya Janata Party.

The next major trigger for the market is Q3 December 2011 corporate earnings, which will start trickling in from tomorrow, 12 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. TCS and HCL Tech unveil quarterly results on 17 January 2012. Jindal Steel & Power announces Q3 results on 18 January 2012. HDFC Bank, Hero MotoCorp and Bajaj Auto unveil Q3 results on 19 January 2012. ITC, Axis Bank and Jet Airways (India) unveil Q3 results on 20 January 2012. JSW Steel reports its Q3 standalone results on 20 January 2012.

Asian Paints, Zee Entertainment Enterprises and Godrej Consumer Products unveil Q3 results on 21 January 2012. L&T, Maruti Suzuki and Kotak Mahindra Bank unveil Q3 results on 23 January 2012. Cairn India and Biocon unveil Q3 results on 24 January 2012. Sesa Goa and Rural Electrification Corporation unveil Q3 results on 25 January 2012. Dabur India unveils Q3 results on 31 January 2012. Mahindra & Mahindra unveils Q3 results on 7 February 2012. India Cements announces Q3 results on 6 February 2012. BPCL unveils Q3 results on 10 February 2012. Aditya Birla Nuvo announces Q3 results on 11 February 2012.

The government has decided 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.

Food inflation plunged into the negative territory in the fourth week of December mainly due to base effect, data released by the Government showed on Thursday, 5 January 2011. Fuel inflation edged up though. Food inflation shrank by 3.36% in the week ended December 24, after rising by 0.42% in the preceding week. Inflation in the Primary Articles group fell to 0.1% in the week under review, from 2.7% in the week ended December 17. Inflation in the Fuel & Power group stood at 14.60% in the week ended December 24, versus 14.37% in the previous week.

At its mid-quarterly monetary policy review meet on 16 December 2011, the 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.

Data on industrial production for November 2011 on Thursday, 12 January 2012, and data on inflation for December 2011 on Saturday, 14 January 2012, could provide cues on the central bank's likely policy stance at the third quarter review of Monetary Policy 2011-12 scheduled on 24 January 2012.

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.

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 advanced for a third day on Wednesday as optimism about the U.S. economy tempered Fitch Ratings' warning it may downgrade Italy's credit rating. Key benchmark indices in Hong Kong, Indonesia, Japan, Singapore, and Taiwan rose by between 0.09% to 0.22%. Key benchmark indices in China and South Korea fell by between 0.14% to 0.32%.

Italy faces a “significant chance” of a credit-rating downgrade by Fitch Ratings, which is reviewing all European sovereign ratings and will make a decision by the end of the month.

U.S. stock rallied to a 5 month high Tuesday on optimism that China may begin monetary easing spurring economic growth and Alcoa kicking off the earnings season on a positive note. China's reported a drop in import growth triggering speculation that monetary easing is right around the corner adding to the worldwide stock rally.