Market may open higher on firm Asian stocks

The market may open higher tracking firm Asian stocks. Trading of S&P CNX Nifty on the Singapore stock exchange indicates a gain of 48 points at the opening bell.

Key benchmark index fell for the fourth straight day amidst high volatility on Wednesday, 5 October 2011 as data showing a decline in service sector activity in September 2011, data showing resumption of selling by foreign funds at the beginning of this month, and likely muted-to-weak Q2 earnings weighed on sentiment. The BSE Sensex lost 72.45 points or 0.46% to settle at 15,792.41, its lowest closing level since 5 February 2010.



The stock market remained closed on Thursday, 6 October 2011, on account of Dassera.

Foreign institutional investors (FIIs) sold shares worth net Rs 1008.87 crore on Wednesday, 5 October 2011, as per latest data from Securities & Exchange Board of India (Sebi), higher than an outflow of Rs 971.44 crore on Tuesday, 4 October 2011. FIIs had offloaded shares worth Rs 3088.88 crore in September 2011, as per data from stock exchanges. The outflow in August 2011 came on the top of heavy sales in August 2011. FIIs had dumped shares worth a massive Rs 10905.50 crore in August 2011, as per Sebi data.

The government will today, 7 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 24 September 2011.

The near-term major trigger for the market is Q2 September 2011 results. The results are expected to be muted-to-weak due 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. IT bellwether Infosys kickstarts the Q2 September 2011 earnings season on 12 October 2011. Housing finance major HDFC unveils Q2 results on 17 October 2011. HDFC Bank unveils Q2 results on 19 October 2011.

Bajaj Auto, Cairn India and Thermax unveil quarterly results on 20 October 2011. Asian Paints and Godrej Consumer Products reveal Q2 results on 21 October 2011. Axis Bank unveils Q2 results on 22 October 2011. DR. Reddy's Lab unveils Q2 results on 25 October 2011. Maruti Suzuki reports Q2 results on 29 October 2011. Dabur India, Colgate Palmolive (India) and BPCL unveil Q2 results on 31 October 2011. Aditya Birla Nuvo unveils Q2 results on 1 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 raw materials has dropped 24% from a 32-month high in April 2011 on concern that demand for energy, metals and crops will decline as Europe's escalating debt woes choke the global economy.

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.

A news agency recently quoted principal economic adviser to the ministry of finance Dipak Dasgupta as saying that the government has no plans to tax or impose restrictions on capital outflows. He said the government will instead focus on liberalising fund inflows into the economy, particularly via overseas borrowing.

Finance Minister Pranab Mukherjee said last month that central banks in emerging economies have been forced to raise interest rates repeatedly as they battle high inflation, exposing them to volatile capital flows. "An issue of immediate concern for emerging economies is managing large capital flows," he said. "Large and volatile capital flows to emerging markets can be destabilizing as they lead to high exchange rate volatility and in some cases make it incumbent to maintain high levels of foreign exchange reserves as an insurance against sudden and large-scale flight of international capital."

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.

The government, last week, 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 last week 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 Monday, 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.

Monsoon rains at the end of the June-September season were 1% above the 50-year average, raising hopes of improved crop supplies at a time when the country is battling high food prices. The rains normally start subsiding in the first week of September, but they continued two weeks longer this year. This has boosted the prospects of not only summer-sown crops such as rice, but also winter-sown staples like wheat, because of good soil moisture.

Sowing of winter crops usually starts in October and picks up between the end of November and the first half of December. Apart from wheat, rapeseed and pulses are among other important crops grown during the winter season. India is aiming for a record foodgrain output of 245 million tons in the crop year that started on 1 July.

Rangarajan on 29 September 2011 said there has to be definite signs of inflation falling before the Reserve Bank of India can reverse its current policy. Reserve Bank of India (RBI) deputy governor Subir Gokarn on 28 September 2011 said poor supply responses to rising demand for protein-rich food aren't helping to lower the inflation rate. His comment underscores the central bank's growing dismay over the government's loose fiscal stance that is diluting monetary policy moves and weakening its battle against inflation. "Energy prices have remained very steady. I think (it) is a huge problem to deal with because it certainly reduces the space that monetary policy has," Mr. Gokarn said at a conference.

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.

Inflation in India remains high and will probably remain in a range of 9% to 10% until November 2011, Gokarn said last month. 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.

RBI governor D Subbarao, last week, said inflation rate remains above the level the central bank deems acceptable. Inflation has been fairly stubborn, Subbarao said in New York. "Above a threshold, you can't accept high inflation to have higher growth," he said, adding that the price-rise limit is as much as 6% for the nation. A rate of 4% to 6% is the short-term comfort range for inflation, Subbarao said. He said the central expects inflation to slow by March 2012, but more slowly than initially expected. Intervention in forex markets brings unexpected consequences, Subbarao 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 Wednesday, 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. "We are getting close to the end of the Reserve Bank of India's tightening cycle, but we are not quite there yet," Eskesen said.

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 Monday, 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 stocks rose Friday after euro zone policymakers moved to shore up struggling banks and fend off a new financial crisis. Key benchmark indices in Indonesia, Hong Kong, Japan, Singapore, South Korea and Taiwan were up by between 1.14% to 3.09%. The stock markets in mainland China were closed for a holiday.

U.S. stocks rose for a third day in a row on Thursday as developing euro zone plans to backstop European banks gave investors hope the threat of a financial crisis was waning. New claims for unemployment benefits rose slightly less than expected last week, hinting at an improved labor market a day before the closely watched non-farm payrolls report.

The European Central Bank said it was ready to buy bonds to provide longer-term cheap money for European lenders in need of funding.

The European Central Bank reinstated some of its most potent crisis-fighting tools on Thursday in response to intensifying euro zone troubles, but opted to keep interest rates at 1.5% despite some of the bank's policymakers calling for cuts.

The Bank of England has said it will inject a further £75 billion into the economy through quantitative easing (QE). The Bank has already pumped £200 billion into the economy by buying assets such as government bonds, in an attempt to boost lending by commercial banks.