Market seen opening higher on positive global cues

The market may edge higher in opening trade on positive cues from global markets. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 2.50 points at the opening bell. In US, the Standard and Poor's 500 index scaled its highest level since June 2008 after the unemployment rate unexpectedly dropped. Asian markets were trading firm.



Foreign institutional investors (FIIs) bought shares worth a net Rs 144.04 crore and domestic institutional investors bought shares worth Rs 237.45 crore on Friday, 4 February 2011, as per provisional data from the stock exchanges.

The next major trigger for the stock market is Union Budget 2011-2012. 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.

Meanwhile, Finance Minister Pranab Mukherjee has reportedly convened a meeting of leaders of political parties on 8 February 2011 to resolve the deadlock in Parliament on the issue of Joint Parliamentary Committee (JPC) into the 2G spectrum scam. Lok Sabha Speaker Meira Kumar has convened a meeting of leaders of some of the political parties on Monday, 7 February 2011, to ensure smooth functioning of the budget session after the longest shutdown of Parliament in the winter session on the JPC issue.

Most Asian markets were trading higher on Monday, 7 February 2011, as earnings increased and the US unemployment rate unexpectedly dropped, boosting confidence in global economic recovery. The key benchmark indices in South Korea, Japan, Singapore and Indonesia rose by between 0.06% to 0.69%. However, Hong Kong's Hang Seng index fell 0.13%. Chinese markets remained shut for the Lunar New Year Holidays.

US stocks rose on Friday, 4 February 2011, reversing losses and sending the Standard and Poor's 500 Index to the highest level since June 2008, after unemployment rate unexpectedly dropped and more companies beat earnings estimates. The Dow Jones industrial average rose 29.89 points, or 0.25%, at 12,092.15. The S&P 500 index added 3.77 points, or 0.29%, at 1,310.87 and the Nasdaq Composite index climbed 15.42 points, or 0.56%, at 2,769.30.

The Labor Department said on Friday, 4 February 2011, the US unemployment rate fell to 9% in January 2011 from 9.4% in December 2010.

Back home, concerns of political instability over the 2G scandal pulled the market sharply lower in late trade on Friday, 4 February 2011, with 50-unit S&P CNX Nifty tumbling to 6-month closing low below 5,400. The BSE 30-share Sensex was down 441.16 points or 2.39% to 18,008.15, its lowest closing since 31 August 2010. The S&P CNX Nifty was down 131 points or 2.37% to 5,395.75, its lowest closing since 30 July 2010.

On the macro front, there are concerns that high inflation will trigger more monetary tightening from the Reserve Bank of India this year. A recent surge in crude oil prices amid unrest in Egypt could add to inflationary pressures. Prime Minister Manmohan Singh on Friday, 4 February 2011, said the country's high inflation posed a "serious threat" to the growth momentum, and was driven by supply-side shortages.

Reserve Bank of India (RBI) deputy governor Subir Gokarn on Sunday, 6 February 2011, said events in Egypt will have an impact on monetary policy. "After making the policy announcement on 25th Jan, a whole set of events unfolded in the Middle East, which are starting to have an impact on oil prices, obviously, which we did not anticipate at the time we made the announcement," Gokarn said. "So, a completely new environment has emerged in a very short time after the announcement. It is going to have an impact on our thinking, our action going forward," Gokarn added.

On the corporate front, the results announced so far showed that the combined net profit of a total of 1,860 companies rose 22.4% to Rs 75871 crore on 20.50% rise in sales to Rs 631699 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.