Market seen opening sideways on mixed global cues

The market is likely to open on a flat to positive note with little direction from Asian and US markets. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 2.50 points at the opening bell. On the macro front, the government will unveil data on some wholesale price indices for the year through 22 January 2011 viz. the food price index, the primary articles index and the fuel price index at about 12:00 IST.



On the corporate front, the results announced so far showed that the combined net profit of a total of 1,618 companies rose 22.30% to Rs 72024 crore on 20.50% rise in sales to Rs 599178 crore in Q3 December 2010 over Q3 December 2009.

Foreign institutional investors (FIIs) have been on a selling spree recently. FIIs sold shares worth a net Rs 81.73 crore on Wednesday, 2 February 2011. Their outflow in the calendar year 2011 totaled Rs 6139.20 crore (till 1 February 2011). FII outflow in January 2011 totaled Rs 4813.20 crore. FIIs had bought equities worth Rs 2049.60 crore in December 2010. Domestic institutional investors bought shares worth Rs 680.38 crore on Wednesday, 2 February 2011.

Asian markets were trading mixed. Indonesia's Jakarta Composite rose 1.11% while Japan's Nikkei 225 slipped 0.24%. The Chinese stock markets will reopen on 9 February 2011 after remaining shut for a week from Wednesday, 2 February 2011, for the Lunar New Year holidays. South Korean and Taiwanese markets are also closed for the Lunar New Year holidays this week.

US stocks struggled to move higher on Wednesday, 2 February 2011, as investors took a break after recent rally. The Dow Jones Industrial Average rose 1.81 points to 12,041.97. The S&P 500 fell 3.56 points to 1,304.03 and the Nasdaq declined 3.86 points to 2,321.09.

A report by ADP Employer Services showed private companies in America added 187,000 jobs in January 2011, exceeding economists forecast. It is the 12th consecutive month that employers have lifted staffing levels.

Back home, bargain hunting after a recent steep slide helped the key benchmark indices register small gains in choppy trading session on Wednesday, 2 February 2011. Firm global stocks helped Indian stocks snap last five days' losses. The BSE 30-share Sensex was up 68.40 points or 0.38% to 18,090.62 and the S&P CNX Nifty was up 14.80 points or 0.27% at 5,432.

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 faster than they have till now.

In macro news, exports in December rose an annual 36.4% to $22.5 billion, while imports for the month fell 11.1% on the year to $25.1 billion, the latest government data showed. The trade deficit in December narrowed to $2.6 billion compared with $8.9 billion in November. Exports rose an annual 29.5% to $164.7 billion in April-December 2010.

The manufacturing sector expanded at a slightly faster pace in January 2011 on the back of output and new order growth but inflationary pressures persisted, a business survey showed. The HSBC Markit Purchasing Managers' Index, based on a survey of around 500 companies, edged up to 56.8 in January from 56.7 in December. That was the 22nd consecutive month the key index of manufacturing has been above the reading of 50 that divides growth from contraction.

The GDP growth for the 2009/10 fiscal year has been provisionally revised upwards to 8% from 7.4%, a government statement said on Monday. "The estimates of GDP and other aggregates for the previous years have been revised on account of using the new series of wholesale price index (WPI) with base 2004-05 and also subsequent revision in index of industrial production (IIP)," the Central Statistical Organisation said in a statement on Monday.

To control surging inflation, the Reserve Bank of India (RBI) at its quarterly policy review on 25 January 2011 raised repo rate by 25 basis points to 6.5% and the reverse repo rate by 25 basis points to 5.5%. Repo rate is the rate at which the RBI lends money to banks. Reverse repo is the rate at which RBI borrows funds from banks. The central bank held the cash reserve ratio steady at 6%.

"As high food inflation persists, the prospect of it spilling over to the general inflation process is rapidly becoming a reality," Reserve Bank of India (RBI) Governor Subbarao said in the policy document released on Tuesday, 25 January 2011. The RBI lifted its headline inflation projection for March 2011 to 7% from 5.5% previously. The RBI stuck with its 8.5% GDP growth forecast for the current fiscal year, but with an upside bias.

The combined risks from inflation, the high current account deficit (CAD) and fiscal situation contribute to an increase in uncertainty about economic stability that consumers and investors will have to deal with, RBI said. To the extent that this deters consumption and investment decisions, growth may be impacted. While slower growth may contribute to some dampening of inflation and a narrowing of the CAD, it can also have significant impact on capital inflows, asset prices and fiscal consolidation, thereby aggravating some of the risks that have already been identified, it said.

Capital flows, which so far have been broadly sufficient to finance the CAD, may be adversely affected, the RBI said. Faster than expected global recovery may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India. This may increase the vulnerability of India's external sector. Hence, the composition of capital inflows needs to shift towards longer-term commitments such as foreign direct investment (FDI), the RBI said.