Market may open lower on weak Asian stocks; Inflation data eyed

The market may open lower tracking weak Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 6 points at the opening bell.

Data on wholesale price index for September 2011 due today, 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.



Key benchmark indices edged lower amid intraday volatility on Thursday, 13 October 2011 as weak European shares triggered profit taking on the domestic bourses after recent strong gains in share prices. The BSE Sensex lost 74.47 points or 0.44% to settle at 16,883.92, its lowest closing level since 11 October 2011.

Foreign institutional investors (FIIs) bought shares worth Rs 670.08 crore on Thursday, 13 October 2011 as per provisional figures on stock exchanges. FIIs had bought shares worth Rs 595.01 crore and 114.15 crore on Wednesday, 12 October 2011 and Tuesday, 11 October 2011.

Maruti Suzuki India grappling with labor unrest at a factory, said Thursday it will shut a separate plant for two days due to a shortage of components caused by a workers' strike at two auto-part suppliers owned by its parent. The Suzuki Motor Corp. unit said it will suspend production at its Gurgaon plant in northern India's Haryana state on Friday and Saturday. Maruti's other factory, in Manesar, which is also in Haryana, hasn't produced any vehicles since Oct. 7 due to a strike by about 1,500 workers. The current labor unrest follows Maruti's Aug. 29 decision to halt operations in Manesar after it asked 950 workers to sign a "good conduct bond" before they could enter the factory. The move came after the company said it discovered "serious and deliberate" quality problems in cars made at the plant.

Public sector undertakings (PSUs) are likely to be in limelight today after the government unveiled a new policy which accords greater autonomy to profit-making PSUs in acquiring raw material assets abroad, and said it will also consider setting up a sovereign wealth fund.

Index heavyweight Reliance Industries will be in action ahead of its Q2 results tomorrow, 15 October 2011.

The Q2 results season has started on a positive note, with good results from IT bellwether Infosys on Wednesday, 12 October 2011. The company also revised upwards its full year earnings guidance in both dollar and rupee terms. Stock-specific activity may dominate trade in the near-term as earnings trickle in. 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. 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, Sterlite Industries 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. Mahindra & Mahindra and India Cements unveil Q2 results on 14 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 had declined from its 2011 high of 43.855 reached in late July 2011. 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.

The food price index rose 9.32% and the fuel price index climbed 15.10% in the year to 1 October 2011, government data on Thursday showed. In the previous week, annual food and fuel inflation stood at 9.41% and 14.69%, respectively. The primary articles index was up 10.60%, compared with an annual rise of 10.84% a week earlier.

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.

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 September 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 inched down on Friday, tracking New York and European shares lower as weak Chinese trade data raised concerns about the global economy. Key benchmark indices in China, Japan, Hong Kong, Indonesia, Taiwan and South Korea fell by between 0.35% to 1.22%. Singapore's Straits Times rose 0.07%.

Ratings agency Standard and Poor's downgraded the long-term credit rating of Spain by one notch on Friday, as it followed hard on the heels of a similar downgrade by Fitch last week. S&P cited Spain's high unemployment, tightening credit and high level of private-sector debt among the reasons for the downgrade of the nation's creditworthiness to AA- from AA. S&P and Fitch now rate Spain as AA- and both also have signalled further possible downgrades.

Slovakia finally ratified new powers for the euro zone's rescue fund on Thursday, the last country to do so, clearing the way for a bolder effort to arrest Europe's sovereign debt crisis, which threatens global financial stability. The vote came 10 days before a European Union summit called to approve a "comprehensive strategy" to fight the crisis, expected to include action to reduce Greece's debt burden, a plan to strengthen European banks and measures to stop contagion spreading to larger euro zone economies.

US stocks slipped on Thursday after JPMorgan's earnings and China's soft trade data revived worries about the impact of slower growth on profits. China's trade surplus narrowed for a second straight month in September as both imports and exports were lower than expected, pointing to cooling domestic and global economic demand. In U.S. economic data, new claims for jobless benefits were little changed last week and the trade deficit narrowed marginally in August, indicating a modest improvement in the economy.