Advance tax data, RBI policy in focus

Data on advance tax for the first installment, the Reserve Bank of India's mid-quarter monetary policy review and progress of the monsoon rains will determine the near-term trend on the bourses, which have been range bound off late. Investors will eye the first installment of advance tax from Indian firms due on 15 June 2011, which could provide a cue on Q1 June 2011 corporate earnings.



Data on headline inflation for May 2011 due on Tuesday, 14 June 2011, could provide cues on the likely monetary policy stance of the central bank at its mid-quarter policy review on Thursday, 16 June 2011. The Reserve Bank of India (RBI) is seen raising its key lending rate by 25 basis points at its mid-quarter monetary policy review on 16 June 2011 to tame inflation.

Meanwhile, the government's dithering on fuel price hike has raised concerns about fiscal deficit. The government has budgeted a fuel subsidy bill of $5.2 billion for 2011/12, assuming oil prices below $100 per barrel. Oil prices are currently above $115 a barrel. An increase of $10 a barrel in oil prices raises fiscal deficit by around 0.2% of GDP.

Investors will continue to watch the progress of the annual monsoon rains. The quantity and geographical spread of rainfall during the monsoon season is crucial for India's agriculture sector, which lacks irrigation facilities on more than half its farm land.

On the political front, DMK chief M Karunanidhi has called a top-level party meeting on Friday, 10 June 2011, to decide on the party's alliance with the Congress. As per media reports, Karunanidhi may opt to withdraw ministers from the Cabinet and provide outside support to the Government -- a threat the DMK had held forth earlier but gone back on.

On the global front, the Federal Reserve's second round of quantitative easing or QE2, a temporary policy designed to increase the money supply, keep interest rates low and stimulate the economy, ends on 30 June 2011. A section of the market has been speculating about the possibility of a third quantitative easing program by the Fed after the current one expires in June 2011.