Market may open slightly lower; food inflation data eyed

Profit taking may pull the market lower after a recent rebound. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 13 points at the opening bell. The market has risen in last four consecutive days. On the macro front, the government will unveil data on some wholesale price indices for the year through 5 February 2011 viz. the food price index, the primary articles index and the fuel price index at about 12:00 IST.



As per provisional figures, foreign funds sold shares worth Rs 230.06 crore and domestic funds sold shares worth Rs 68.49 crore on Wednesday, 16 February 2011.

Billionaire Anil Ambani, who controls India's No. 2 mobile carrier Reliance Communications, was questioned on Wednesday by the Central Bureau of Investigation (CBI) in a widening corruption investigation that has battered the government. Anil Ambani is the latest and highest-profile company executive to be quizzed by CBI officials in the probe into whether lucrative mobile phone licences and radio spectrum were sold at below-market prices in return for kickbacks.

The telecoms scandal has brought down a former telecoms minister, leading to his arrest by the CBI. The CBI has ordered companies who were involved in the telecoms licence process to answer a series of questions as it probes irregularities and possible corruption.

On the corporate earnings front, 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 combined net profit of a total of 3,627 companies rose 19.6% to Rs 88267 crore on 18.4% rise in sales to Rs 988941 crore in Q3 December 2010 over Q3 December 2009.

Asian stock markets were mixed on Thursday as the Federal Reserve expressed cautious optimism about the strength of the US economic recovery. The key benchmark indices in China, Singapore, South Korea and Taiwan fell by between 0.08% to 0.7%. The key benchmark indices in Hong Kong, Japan and Indonesia rose by between 0.07% to 0.39%.

US stocks rose on Wednesday boosted by Dell earnings and deal announcements. The market overcame concerns about tensions between Israel and Iran. Two Iranian warships planned to sail through the Suez canal en route to Syria on Wednesday, an Israeli official said, calling it a "provocation" by the Islamic Republic. In economic news, US core wholesale prices rose in January at the fastest rate in more than two years, raising some concerns about inflation.

Back home, the latest economic data showed that the headline inflation eased slightly in January 2011 on some moderation in prices of manufactured products. The wholesale price index (WPI), rose 8.23% in January 2011 from a year earlier. The index had risen 8.43% in December 2010. Food prices in the WPI index jumped 15.7% in January compared with 13.6% rise in December.

The industrial output in December 2010 rose a slower-than-expected 1.6% from a year earlier. Manufacturing output, which constitutes about 80% of the industrial production, rose an annual 1%, the statistics office said in a statement. Growth in industrial output in November 2010 was revised upwards to 3.62% from earlier 2.7%

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 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.