Market may extend recent gains; food inflation data eyed

The market may extend Wednesday's 2.55% gains on firm Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 12.50 points at the opening bell. The government will today, 13 October 2011, unveil data on some wholesale price indices viz. the food price index, the primary articles index and the fuel price index for the year through 1 October 2011.

Good Q2 results from IT bellwether Infosys, which also revised upwards its full year earnings guidance, firm global stocks and data showing buying by the foreign funds recently, helped key benchmark indices scale 3-week closing highs on Wednesday, 12 October 2011. The BSE Sensex was up 421.92 points or 2.55% to settle at 16,958.39, its highest closing level since 21 September 2011.



Foreign institutional investors (FIIs) bought shares worth Rs 595.01 crore on Wednesday, 12 October 2011, as per provisional figures on the stock exchanges. FIIs bought shares worth Rs 114.15 crore and Rs 211.71 crore on Tuesday, 11 October 2011 and Monday, 10 October 2011 respectively, as per data from stock exchanges.

The near-term major trigger for the market is Q2 September 2011 results. The results are expected to be muted-to-weak on slower volume growth due to slowdown in domestic demand, higher input costs, rising wages, higher interest rates and slowdown in investment growth. Advance tax data from top 100 companies corroborates this view. The advance tax payment by top 100 companies rose a modest 9.9% in Q2 September 2011 from a year ago against 19% growth in Q1 June 2011, suggesting corporate profit growth is likely to be muted in the second quarter.

Among the big companies that have paid lower advance tax, indicating a drop in profits, include State Bank of India (SBI), Maruti Suzuki India and state-run Neyveli Lignite Corporation. SBI's advance tax payment declined 14.2% to Rs 1650 crore in Q2 September 2011. Maruti's tax payment fell 55.8% to Rs 120 crore. Neyveli Lignite tax payment plunged 50.1% to Rs 66 crore. But, Reliance Industries' (RIL) advance tax payment jumped 37.6% to Rs 1800 crore, hinting at good Q2 results from the diversified firm.

Investors will closely watch the management commentary at the time of announcement of Q2 September 2011 results, which will provide cues on futures earnings outlook. Infosys kick started Q2 result season on upbeat note by reporting good Q2 results on Wednesday, 12 October 2011, which also revised upwards its full year earnings guidance. Reliance Industries unveils Q2 results on 15 October 2011. IT major TCS, housing finance major HDFC and media major Zee Entertainment Enterprises unveil Q2 results on 17 October 2011. Jindal Steel & Power, Jet Airways (India), Hero MotoCorp and HCL Technologies unveil quarterly results on 18 October 2011. HDFC Bank unveils Q2 results on 19 October 2011.

Bajaj Auto, Cairn India, Biocon, UltraTech Cement, Exide Industries and Thermax unveil quarterly results on 20 October 2011. Engineering & construction major L&T, Idea Cellular, paints major Asian Paints, JSW Steel and Godrej Consumer Products reveal Q2 results on 21 October 2011. Axis Bank and Grasim unveil Q2 results on 22 October 2011. Cigarette major ITC and Titan Industries unveil Q2 results on 24 October 2011.

NTPC, Kotak Mahindra Bank and Dr. Reddy's Lab unveil Q2 results on 25 October 2011. Maruti Suzuki reports Q2 results on 29 October 2011. ICICI Bank, Wipro, Dabur India, Colgate Palmolive (India) and BPCL unveil Q2 results on 31 October 2011. Cement majors ACC and Ambuja Cements and Aditya Birla Nuvo unveil quarterly results on 1 November 2011. ABB unveils results on 8 November 2011. Ranbaxy Laboratories unveils quarter results on 9 November 2011.

Lower global commodity prices may ease pressure on corporate profit margins arising from higher raw material prices and at the macro level it could help ease inflation pressure. However, a weak rupee will offset the benefit of the recent steep fall in global commodity prices triggered by global growth worries. Most commodities imported by India, particularly oil, are denominated in dollars making these expensive for India. The rupee slumped 8.8% percent in July to September 2011 to 48.97/98, its largest quarterly fall since the same period in 2008. The Standard & Poor's GSCI Index of 24 commodities, hit a 10-month low last week. Commodity prices have since recovered along with global equities.

The market regulator Securities and Exchange Board of India recently set a minimum net worth of Rs 100 crore for companies that wish to issue structured products or market-linked debentures to raise funds. Sebi also set the minimum size for such issues at Rs 10 lakh. Market-linked debentures are hybrid products which have the features of usual debt securities, but offer market-linked returns like an exchange-traded derivative. The issuer company will have to appoint a third party, a credit-rating company registered with the regulator, which will provide the value of the security at least once a week, Sebi said in a circular.

The government last month raised the limit of overseas borrowing for companies to $750 million from $500 million. Indian companies can also now raise loans up to $1 billion in Chinese yuan.

Given the lackluster initial FII response to the government's sharply raising the ceiling of FII investment in long-term corporate bonds issued by the companies in the infrastructure sector in March 2011, the government on 12 September 2011, further relaxed the norms on FII investment in such bonds. Sebi had in early August 2011 allowed Qualified Foreign Investors (QFIs) to subscribe to Mutual Fund Debt Schemes which invest in the infrastructure sector subject to a total overall ceiling of $3 billion within the total ceiling of $25 billion.

Industrial output in the month of August 2011 rose a slower-than expected 4.1% from a year earlier, data released by the government on Wednesday, 12 October 2011, showed. Industrial output growth for July was revised upwards to 3.84% from a provisional reading of 3.28%. Manufacturing output, which constitutes about 76% of the industrial production rose an annual 4.5% in August versus 2.3% in July. The government also revised upwards the industrial production growth for May 2011 to 6.15% from 5.91% reported earlier.

The government recently raised its borrowing target for the current fiscal year by Rs 52800 crore, surprising the market and fueling worries that it may even overshoot the new estimate because of muted revenue growth amid a slowing economy and swelling subsidies. The government will borrow Rs 2.2 lakh crore during October 2011-March 2012 period, or the second half of the fiscal year, compared with the target of Rs 1.67 lakh crore announced in budget in February 2011. C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, on 29 September 2011 said it is going to be difficult to achieve fiscal deficit target of 4.6% of GDP for the year ending March 2012.

The government's new borrowing programme may crowd out private borrowers who come into the market in the second half of the year. Credit growth normally picks up after October every year when the busy season starts.

Atsi Sheth, a New York-based vice president and senior analyst at Moody's Investors Service said in a media interview recently that Moody's is unlikely to change its rating outlook on India for now, though the extent of the increase in the government's borrowing target is a surprise. The possibility of fiscal slippage is, however, already factored into the sovereign rating, Sheth said.

Standard & Poor's Ratings Services on 3 October 2011 said it is maintaining its view that India will struggle to meet its fiscal deficit target. Takahira Ogawa, director of Sovereign and International Public Finance Ratings at S&P said India must prove its intent to continue with the process of fiscal consolidation in the medium term.

While its tolerance of inflation has gone up with rising income levels, the Reserve Bank of India (RBI) will raise rates further if high inflation persists, central bank deputy governor Subir Gokarn said Wednesday, 12 October 2011. The RBI will discuss domestic growth and inflation at its board meeting on Thursday, 13 October 2011, central bank governor D Subbarao added at a joint panel discussion, as he reiterated that controlling inflation is the main focus of monetary policy. Rangarajan on Wednesday, 12 October 2011, said the September inflation data will be key in shaping the RBI's next rate move.

Food inflation accelerated in the week ended 24 September 2011, reflecting prolonged inflationary pressures and mounting pressure on the central bank to continue its rate increase cycle. Wholesale price index-based inflation quickened to 9.41% from a year earlier, compared with 9.13% the previous week, according to data issued on Friday, 7 October 2011, by the Ministry of Commerce and Industry. On a week-on-week basis, the food articles index rose a marginal 0.2% to 197.7, recording the eighth successive week of rising prices.

Data on wholesale price index for September 2011 due on Friday, 14 October 2011, could provide cues on the Reserve Bank of India's likely monetary policy stance at the half-yearly review of the monetary policy on 25 October 2011. A Capital Market poll of economists expects 9.7% inflation for September 2011, compared with a reading of 9.78% for August 2011. Five out of nine economists polled by Capital Market expect a 25 basis points hike in repo rate from the Reserve Bank of India at its half-yearly review of the monetary policy on 25 October 2011. The rest four expect a status quo on rates.

RBI said at a monetary policy review on 16 September 2011 that it is imperative to persist with the current anti-inflationary stance because a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. The RBI raised repo rate by 25 basis points on 16 September 2011.

Going forward, the stance of the monetary will be influenced by signs of downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments, RBI said in its 16 September 2011 policy statement. The overall tone of the RBI's latest policy was softer than the previous policy announcement which was extremely hawkish.

RBI said on 16 September 2011 that corporate margins moderated across several sectors in Q1 June 2011 compared to levels in Q4 March 2011. However, barring a few sectors, significant pass-through of rising input costs is still visible, RBI said.

India's services sector contracted for the first time in more than two years as new business dried up and expectations weakened amid concern over a flagging world economy, a survey showed on 5 October 2011. The seasonally adjusted HSBC Markit Business Activity Index, based on a survey of around 400 firms, plunged in September to 49.8 -- its lowest reading since April 2009 -- and below the 50 mark which separates growth from contraction.

The slowdown in growth has continued to broaden with the service sector seeing a further slowdown in economic momentum, HSBC economist Leif Eskesen said. The new business sub-index sank to a 28-month low of 51.6 in September, down from 54.9 in August. The weak expansion in new business -- the main cause of the stagnation in activity -- meant employment levels fell for a third consecutive month. Despite harsh conditions firms were able to pass on rising input costs to customers, albeit at a slightly lower pace than in August.

The growth in manufacturing sector nearly stalled in September 2011, hitting its weakest spot since March 2009 on slowing output and orders growth following a series of interest rate hikes, data showed on 3 October 2011. The HSBC Markit India Manufacturing PMI fell more than two points to 50.4 in September 2011 from 52.6 in August 2011, very close to the 50 mark which divides growth and contraction. The output index plunged by its biggest amount in one month since November 2008, to 51.1 from 56.

Exports jumped 44.25% to $24.3 billion in August 2011 from a year earlier, while imports for the month rose 41.82% to $38.4 billion, leaving a trade deficit of $14 billion, the latest government data showed.

Asian shares rose on Thursday on growing hopes that Europe is taking concrete steps to contain the region's debt woes and head off a systemic banking crisis. Key benchmark indices in China, Taiwan, Japan, Hong Kong, Indonesia, Singapore and South Korea rose by between 0.25% to 1.43%.

China's exports rose 17.1% in September from a year earlier, compared to a 24.5% rise in August. The Bank of Korea has kept its key rate on hold at 3.25% for the fourth straight month. The move was widely expected by markets and economists.

Lawmakers in Slovakia struck a deal on Wednesday to ratify a plan to bolster the euro zone's rescue fund by Friday, effectively ending a crisis that had threatened the currency's main safety net. Slovakia is the only country in the 17-nation bloc left to approve the revamp of the fund.

Germany and France, the leading powers in the bloc, have promised to propose a comprehensive strategy to fight the debt crisis at an EU summit on 23 October 2011.

U.S. stocks rose on Wednesday as Europe's progress toward bolstering its financial rescue fund brought more battle-weary investors back into the market.

U.S. Federal Reserve officials discussed the possibility of launching a fresh round of bond purchases before deciding last month on a more limited step to aid the economy, minutes released on Wednesday showed. Fed staff presented policy-makers with a range of ways they could step up monetary stimulus for the flagging economy, including laying out their goals for the labor market.