Market may open slightly higher

Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 10 points at the opening bell. The government's decision to allow qualified foreign investors (QFIs) to directly invest in the Indian equity market may help boost market sentiment.

Starting off the New Year on a liberalisation note, the government on 1 January 2012 announced its decision to allow Qualified Foreign Investors (QFIs) to directly invest in the Indian equity market from 15 January 2012. The move comes against the backdrop of significant foreign capital outflows from the domestic equity market in recent times, which has resulted in rupee volatility. A QFI is an individual, group or association resident in a foreign country that is compliant with Financial Action Task Force (FATF) standards. 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.

Key benchmark indices fell on the last trading session of 2011 on Friday, 30 December 2011 as European stocks reversed initial gains. Expectations of weak Q3 corporate earnings weighed on the domestic bourses as the key benchmark indices dropped for the fourth day in a row. The BSE Sensex lost 89.01 points or 0.57% to settle at 15,454.92, its lowest closing level since 20 December 2011.

Foreign institutional investors (FIIs) sold shares worth Rs 178.15 crore on Friday, 30 December 2011, as per provisional data from the stock exchanges. FIIs sold shares worth a net Rs 2387.13 crore in December 2011 as per provisional data from the stock exchanges. FIIs sold shares worth Rs 26873.07 crore in calendar year 2011. Domestic funds absorbed selling from FIIs, with inflow of Rs 27814.88 in calendar year 2011.

Automobile and cement stocks will be in focus as companies from these two sectors will announce monthly sales volumes data for December 2011. Auto stocks will also hog limelight ahead of the commencement of New Delhi Auto Expo 2012 on 7 January 2012.

Tata Motors' total sales of its commercial and passenger vehicles jumped 22% to 82,278 units in December, 2011 over December 2010. The domestic sales of the vehicles in both categories for the month stood at 76,663 cars, a 24% jump compared to 61,685 in December 2010, the company said in a statement. However, exports declined 3% to 5,615 units compared to 5,809 in December 2010.

Mahindra & Mahindra, India's largest utility vehicles maker, is reportedly interested in buying at least part of bankrupt Swedish carmaker Saab Automobile. Saab was declared bankrupt by a court in early December 2011, ending a nine-month battle by its Dutch owner Swedish Automobile NV SWAN.NS to stay afloat. It has not made any vehicles since April and several rescues have failed.

Aviation stocks will be in focus after state-owned oil companies cut jet fuel price by over 1% in line with softening in the commodity's international rates.

Bank stocks will be in focus after the Reserve Bank of India on Friday, 30 December 2011, issued draft guidelines outlining proposed implementation of Basel III capital regulation in India. RBI has suggested that Common Equity Tier 1 (CET1) capital must be at least 5.5% of risk-weighted assets (RWAs). Tier 1 capital must be at least 7% of RWAs and total capital must be at least 9% of RWAs, according to the draft guidelines. RBI has suggested capital conservation buffer in the form of Common Equity of 2.5% of RWAs.

RBI said the implementation period of minimum capital requirements and deductions from Common Equity will begin from January 1, 2013 and be fully implemented as on March 31, 2017. Capital conservation buffer requirement is proposed to be implemented between March 31, 2014 and March 31, 2017. Instruments which no longer qualify as regulatory capital instruments will be phased-out during the period beginning from January 1, 2013 to March 31, 2022.

For OTC derivatives, in addition to the capital charge for counterparty default risk under Current Exposure Method, banks will be required to compute an additional credit value adjustments (CVA) risk capital charge. The parallel run for the leverage ratio will be from January 1, 2013 to January 1, 2017, during which banks would be expected to strive to operate at a minimum Tier 1 leverage ratio of 5%. The leverage ratio requirement will be finalized taking into account the final proposal of the Basel Committee.

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.

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.

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 said in a statement. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth, RBI said.

RBI 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.

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 on Monday, 26 December 2011, showed. The infrastructure sector accounts for 37.9% of India's industrial output.

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.

Finance minister Pranab Mukherjee on 25 December 2011, said he did not think there was any problem in presenting the Budget for 2012-13 on schedule in the wake of the announcement of assembly elections in five states. Mukherjee, however, said the date for the presentation of the budget will be fixed after discussions at various levels. The Union Budget is presented on the last date of February every year.

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.

Foreign direct investment in India surged by 36% to $23.68 billion during the January-October period last year, notwithstanding uncertain global economic environment. During January-October 201O, the country had attracted Foreign Direct Investment (FDI) worth $17.36 billion.

Most Asian stocks declined on the first trading day of 2012 on concern the global economic recovery will be hampered as Europe's debt crisis enters a new year. Key benchmark indices in Indonesia, South Korea and Taiwan fell by between 0.17% to 1.01%. China's Shanghai Composite rose 1.22%. The stock markets in Hong Kong, Japan and Singapore were closed today for a holiday.

Data yesterday showed China's purchasing managers' index climbed to 50.3 in December from 49 in November. South Korea said yesterday export growth will slow this year and Singapore's government said its economy grew less than previously forecast in 2011. Data today may confirm European manufacturing shrank for a fifth straight month, as regional leaders return to work from the Christmas holidays seeking to buy time to rescue the single currency from fragmentation.

US stock markets remains closed today for a holiday. US stocks edged lower on Friday, the last trading day of 2011, as investors waited for next year to begin making large bets.