Market may open flat to slightly higher; IIP data eyed

The market may open flat to slightly higher as bargain hunting may emerge after the recent steep losses. The market closed at its multi month lows on Thursday, 10 February 2011. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 5 points at the opening bell. The government announces industrial output data for the month of December 2010 today, 11 February 2011. Industrial production growth slumped to 2.7% in November 2010 as against a revised 11.30% growth in October 2010, as growth in the manufacturing output slowed sharply.



As per provisional figures, foreign funds sold shares worth Rs 954.87 crore and domestic funds bought shares worth Rs 637.30 crore on Thursday.

Among prominent results, Tata Motors reports Q3 result today.

The Q3 December 2010 results season is drawing towards a close. The results announced so far showed that the combined net profit of a total of 2,492 companies rose 21.7% to Rs 83686 crore on 19.6% rise in sales to Rs 830399 crore in Q3 December 2010 over Q3 December 2009.

There are concerns of slowdown in corporate profit growth going ahead. With the rise in key policy rates by the Reserve Bank of India (RBI) recently, interest cost will only rise in the coming quarters that could hurt earnings going forward. If raw material costs keep rising at a fast clip, companies will feel the heat of slowing sales growth and rising cost of operations that could start eating into profit growth.

The government should be prepared for the implications of prolonged crisis in the Middle East, which would push up oil prices, the Reserve Bank of India's (RBI) governor D Subbarao said on Thursday. Unrest in Egypt has sparked fears of supply shortages and pushed up crude oil prices. Subbarao said is counting on the government to tighten fiscal policy. Subbarao also added that the bank, which has raised key interest rates seven times over the past year, would set interest rates in order to rein in inflation without hurting growth.

Asian shares slipped to two-month lows on Friday as investors were wary of adding risk due to rising uncertainty in Egypt while the euro came under pressure due to renewed concerns on the euro zone's debt crisis. The key benchmark indices in Indonesia, Japan, Singapore and Taiwan fell by between 0.11% to 0.79%. The key benchmark indices in South Korea, China and Hong Kong rose by between 0.21% to 0.58%.

In US market action, the S&P 500 index and Nasdaq eked out gains in the final minutes of trading on Thursday as Egyptian President Hosni Mubarak said he would delegate powers to the vice president, though he stopped short of resigning. More than two weeks of civilian unrest in Egypt have created some uneasiness among global investors on fears that political instability could spread through the region and impact commodities.

New U.S. claims for unemployment benefits dropped to their lowest level in 2-1/2 years, the government said on Thursday, in a sign the labor market was improving.

The Bank of England defied critics and kept interest rates at a record low on Thursday, judging the threat from rising inflation will prove temporary and that Britain's recovery remains in doubt.

Back home, the food price index rose 13.07% and the fuel price index climbed 11.61% in the year to 29 January 2011, government data on Thursday showed. In the prior week, annual food and fuel inflation stood at 17.05% and 11.61%. The primary articles price index was up 16.24% in the latest week, compared with an annual rise of 18.44% a week earlier.

The next major trigger for the stock market is Union Budget 2011-2012 to be unveiled by the finance minister Pranab Mukherjee on 28 February 2011. Investors will watch if the Finance Minister announces measures to rein in inflation and inflationary expectations. The Finance Minister may announce a new road map for the Goods & Services Tax (GST). The original deadline of 1 April 2010 for roll-out of GST has already been missed due to the lack of consensus between the Centre and states on the issue. GST is India's most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states.

The Centre has reportedly sent the empowered committee of state finance ministers yet another draft constitutional amendment on the proposed goods & services tax (GST) in a last-ditch attempt to reach a consensus before the Budget session of Parliament. The third draft reportedly proposes the creation of a GST Council through an Act of Parliament, instead of presidential order, as proposed in the previous draft. The empowered committee will convene in New Delhi on 11 February 2011 to discuss the revised draft.

The government may also announce some populist measures in the Budget given that assembly elections are due in Kerala, Tamil Nadu, West Bengal and Assam. In all these states, the Congress is potentially looking to regain power or to retain it.