Market seen opening sideways on mixed global cures

The market is likely to see a flat start on mixed global cues. Asian markets were trading mixed today, 8 February 2011 while financials led US stocks to fresh multi-year highs on Monday, 7 February 2011. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 6 points at the opening bell. Among prominent corporate results, Power Grid Corporation of India is due to report third quarter results today, 8 February 2011.



Foreign institutional investors (FIIs) sold shares worth a net Rs 65.47 crore and domestic institutional investors sold shares worth Rs 12.40 crore on Monday, 7 February 2011, as per provisional data from the stock exchanges.

On the corporate front, the results announced so far showed that the combined net profit of a total of 2,005 companies rose 22.1% to Rs 76685 crore on 20.7% rise in sales to Rs 645736 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 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.

Asian stocks were trading mixed on Tuesday, 8 February 2011, after companies reported improving earnings and as U.S. takeovers boosted optimism that the nation's economy is gathering strength. The key benchmark indices in South Korea, Indonesia and Japan rose 0.05% and 0.36% respectively. The key benchmark indices in Hong Kong, Taiwan and Singapore fell by between 0.06% to 0.08%.

Financials led US stocks to fresh multi-year highs on Monday, 7 February 2011, as the market got a lift from a stream of deals, corporate earnings and some relief that a degree of economic activity resumed in Egypt. The Dow Jones Industrial Average rose 69.48 points, or 0.57%, to 12,161.63, its highest close since 16 June 2008. The Nasdaq Composite advanced 14.69 points, or 0.53%, to 2783.99, its highest finish since 6 November 2007. The S&P 500 stock index rose 8.18 points, or 0.62%, to 1319.05, its highest close since 25 June 2008.

The gains were also supported by president Obama's comments that he would seek corporates' help to tackle corporate taxes. He, however, did not specify any plan.

Back home, trading for the week began on a positive note as the Sensex registered small gains in a volatile trading session on Monday, 7 February 2011. Gains in European stocks and a slide in crude oil prices to one-week low triggered bargain hunting in some blue chips after the Sensex hit 5-month low on Friday, 4 February 2011. The BSE 30-share Sensex was up 29.04 points or 0.16% to 18,037.19. The S&P CNX Nifty was almost unchanged at 5396.

On the macro front, the GDP growth in the first half of the current fiscal year to end-March is expected to be revised downwards from 8.9% provisional estimate, Chief Statistician of India T.C.A. Anant said on Monday. Anant also said the government will release a new monthly CPI data series from 18 February 2011.

The government on Monday, 7 February 2011, estimated GDP growth for the fiscal year ending March 2011 at 8.6%. Farm output is expected to grow 5.4%, while industry growth this fiscal is expected at 6.2%. The service sector growth is projected to grow 11%.

Finance Minister Pranab Mukherjee on Sunday, 6 February 2011, said inflation and the current account deficit might become causes of concern if crude oil prices keep rising.

Investors pulled $7 billion out of emerging market equity funds in the week ended 2 February 2011, the biggest outflow in three years, data from fund tracker EPFR Global showed, putting a sizeable dent in the record inflows seen in this category in 2010. The large outflow included an outflow of $4.6 billion from exchange-traded funds (ETFs) focused on emerging markets, the largest such outflow these ETFs have ever seen. Among some of the major emerging market countries, Indian equity funds had their biggest outflow since early June 2010 as commercial lenders started passing on the central bank's latest rake hike, EPFR said. India equity funds had net outflows of $207 million in the week ended 2 February 2011.

There are concerns that high inflation will trigger more monetary tightening from the Reserve Bank of India this year. 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 25 January 2011, 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. The central bank holds a mid-quarter policy review on 17 March 2011.

The central bank last month raised interest rates by 25 basis points to clamp down on resurgent inflation, which stood at 8.43% in December 2010, and warned of persistently high food prices unless steps are taken to boost supplies.