Sensex vaults 4.8% in 2 trading sessions as euro-zone debt worries ease

Key benchmark indices rose for the second straight day to settle at their highest level in 1-1/2-week as euro-zone debt worries eased after assurances from French and German leaders that they will do everything necessary to support Europe's banks. The BSE Sensex jumped 324.69 points or 2%, up close to 325 points from the day's low and off about 40 points from the day's high. The market breadth was strong. All the 13 sectoral indices on BSE were in the green. Telecom stocks rose as telecom minister Kapil Sibal unveiled a draft of the government's new national telecommunications policy today, 10 October 2011.



From a 20-month closing low of 15792.41 on Wednesday, 5 October 2011, the Sensex has jumped 764.82 points or 4.84% in two trading sessions. Before the two-day rebound, the Sensex had lost 905.66 points or 5.42% in four trading sessions to a 20-month closing low of 15792.41 on Wednesday, 5 October 2011 from a recent high of 16,698.07 on 29 September 2011. The index has slumped 3,951.86 points or 19.26% in calendar 2011. From a 52-week high of 21,108.64 on 5 November 2010, the Sensex has lost 4,551.41 points or 21.56%. From a 52-week low of 15,745.43 on 4 October 2011, the Sensex has risen 811.80 points or 5.15%.

Coming back to today's trade, index heavyweight Reliance Industries (RIL) jumped more than 3%. Interest rate sensitive realty and auto stocks rose on hopes a slowing economy could prompt the Reserve Bank of India to pause on rate increases this month. Tata Motors jumped more than 7%. IT stocks rose after Telecom and Information Technology Minister Kapil Sibal on Friday, 7 October 2011, said that the government is considering offering tax incentives to software exporters once the Direct Taxes Code is implemented in April 2012. Power stocks also rose in a firm market. Metal stocks advanced as global commodity prices rose.

The market moved higher in early trade as euro-zone debt worries eased after assurances from French and German leaders that they will act to safeguard European banks. The market briefly slipped into the red later. The market regained positive zone in early trade. The market strengthened to hit fresh intraday high in morning trade. The market extended gains in mid-morning trade to hit its highest level in more than a week. The market further extended intraday gains to hit fresh 1-1/2-week high in early afternoon trade. The market came off highs later. The market held firm in mid-afternoon trade. The market extended gains in late trade.

The BSE Sensex was up 324.69 points or 2% to 16,557.23, its highest closing level since 29 September 2011. The index jumped 363.39 points at the day's high of 16,595.93 in late trade. The index fell 1.77 points at the day's low of 16,230.77 in early trade.

The S&P CNX Nifty was up 91.55 points or 1.87% to 4,979.60, its highest closing level since 29 September 2011. The Nifty hit a high of 4,991.15 and a low 4,882.05 in intraday trade.

The BSE Mid-Cap index rose 1.36% and the BSE Small-Cap index gained 0.97%. Both these indices underperformed the Sensex.

BSE clocked turnover of Rs 2206 crore, higher than Rs 2072.47 crore on Friday, 7 October 2011.

The market breadth, indicating the overall health of the market, was strong. On BSE, 1,692 shares rose and 1,095 fell. A total of 124 shares were unchanged.

From the 30-share Sensex pack, 25 rose and the rest fell. Jindal Steel & Power, Sun Pharmaceutical Industries, Cipla and L&T fell by between 0.51% to 1.38%.

Index heavyweight Reliance Industries (RIL) advanced 3.3%, extending Friday's 4.46% surge triggered by expectations of good Q2 results. RIL's advance tax payment rose 37.6% to Rs 1800 crore in Q2 September 2011 over Q2 September 2010, hinting at good Q2 results from the diversified firm. RIL unveils Q2 results on 15 October 2011.

BP PLC recently said it expects its partnership with RIL to boost natural gas output at the D6 block in the Krishna Godavari basin, off India's east coast. BP Chief Executive Robert Dudley and RIL Chairman Mukesh Ambani met trade minister Anand Sharma in New Delhi on 28 September 2011. RIL is fighting a decline in gas output at the D6 block. BP and RIL on Wednesday, 28 September 2011, pitched for permission from the government to develop satellite fields adjacent to the D6 block.

RIL, last month, closed a deal with UK-based BP to sell a 30% stake in its 21 oil and gas exploration blocks in India. RIL recently denied inflating costs on its D6 gas field in the Krishna-Godavari (KG) basin. RIL made the clarification after CAG said in its final report submitted to the parliament on 8 September 2011 that RIL initially estimated capital expenditure of D-1 and D-3 gas discovery at $2.4 billion, which it later revised to $8.8 billion.

Metal stocks rose as LMEX, a gauge of six metals traded on the London Metal Exchange, gained 1.42% on Friday, 7 October 2011. Tata Steel, Sail, JSW Steel, Hindalco Industries, and Nalco rose by between 0.32% to 3.25%.

Sterlite Industries rose 3.48%, extending Friday's 8.56% jump. The company during market hours on Friday, 7 October 2011, reported production and sales data. Mined domestic zinc metal production was 210,000 tonnes in Q2 and 398,000 tonnes in half year ended September 2011 (H1), up 2% and 3%, respectively, as compared with the corresponding prior periods, reflecting near normal production at Rampura Agucha following the maintenance shutdown in Q1.

During Q2, the Tuticorin copper smelter produced 87,000 tonnes of copper cathode, 28% higher than the corresponding prior quarter. Production in the prior year period was lower on account of a planned bi-annual maintenance shut-down. During H1, production of copper cathode was up 11% at 161,000 tonnes. Aluminium production at Balco was 60,000 tonnes in Q2 and 121,000 tonnes in H1, lower by 8% and 5% respectively, as compared with the corresponding prior periods. The company sold 1,748 million units of power in Q2 as compared with 463 million units in the corresponding prior quarter. The company sold 3,415 million units of power in H1, compared to 943 million units in the corresponding prior period.

Interest rate sensitive auto stocks rose on hopes a slowing economy could prompt the Reserve Bank of India to pause on rate increases this month. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing. Tata Motors rose 7.4%, extending Friday's 7.73% surge triggered by easing of euro-zone debt worries. UK unit, Jaguar Land Rover, generated 57% of Tata Motors' revenue for the year ended 31 March 2011, up from 53% a year earlier.

Tata Motors on Friday, 7 October 2011, introduced its Manza sedan and Prima range of trucks in South Africa at the Johannesburg International Motor Show. "We see Africa as a region of tremendous potential for the group," Noel Tata, managing director of Tata International, the trading arm of Tata Group, said in a statement. "In South Africa, the auto industry is making giant strides and we are happy to contribute to this growth." Tata Motors sells its passenger vehicles and light trucks in South Africa through a local joint venture between group company Tata Africa Holding and South Africa's Associate Motor Holdings. Other trucks and buses are sold through a wholly owned subsidiary of Tata Africa, Tata Automobile Corporation South Africa (Pty).

Tata Motors' total sales rose 22% to 78,786 units in September 2011 over September 2010. The homegrown firm's total passenger vehicles sales in the domestic market stood at 26,319 units in September, up 10.22% from 23,877 units in the same month last year. The company's total exports grew by 23% to 6,220 units in September 2011 over September 2010.

Mahindra & Mahindra (M&M) gained 1.28% after the company said its Rudrapur, Uttarakhand plant has resumed operations after curfew imposed by authorities in the area was relaxed.

M&M's total auto sales rose 25% to a record 44,137 units in September 2011 over September 2010. The company's domestic sales stood at 41,136 units during September 2011, as against 33,866 units during September 2010, an increase of 21%. M&M's Passenger Vehicles segment (which includes the Utility vehicles and Verito) registered a growth of 11%, having sold 19,447 units in September 2011, as against 17,537 units during September 2010. The 4-wheeler commercial segment which includes the passenger and load categories registered a phenomenal growth of 45%.

Speaking on the monthly numbers, Rajesh Jejurikar, Chief Executive, Automotive Division, Mahindra & Mahindra said, "We are delighted with the 28% growth that we have clocked for the first half of FY 2012 (year ending March 2012), and the record sales of 44,137 that we have clocked in September 2011. We are also very excited with the initial response to our global SUV the XUV5OO and do hope to further consolidate our position in the SUV market with this launch".

Bajaj Auto rose 3.34%. The company's total sales rose 18% to a record 4,17,686 units in September 2011 over September 2010. Motorcycle sales rose 18% to a record 3,71,208 units. Commercial vehicle sales rose 21% to 46,478 units in September 2011 over September 2010. The company said it achieved record three-wheeler sales in September 2011. Exports rose 39% to 1,41,913 units in September 2011 over September 2010.

Bike maker Hero MotoCorp gained 1%. The company's total sales jumped 26.75% to 5.49 lakh units in September 2011 over September 2010. Hero MotoCorp's total sales increased 20.10% to 15.44 lakh units in Q2 September 2011 over Q2 September 2010. The company expects sales growth to continue into the festive season.

India's largest car maker by sales Maruti Suzuki India fell 3.58% on reports the company has dismissed 10 employees, suspended 10 others and terminated the training of 5 trainees in connection with the strike and violence at its Manesar factory premises. The stock was the top loser from the Sensex pack.

Workers at Maruti Suzuki India's Manesar plant in Haryana had reportedly went on stay-in strike on afternoon Friday, 7 October 2011 affecting production. The total number of workers who went on the stay-in strike inside the Manesar plant was around 2,000. This included all categories like regular, contractual, apprentices and trainees. The Manesar plant produces about 1,200 units on an average in a normal working day, including models such as Swift, SX4 and the A-Star.

Workers at Suzuki Powertrain India--which makes diesel engines for Maruti Suzuki--are also on strike. Suzuki owns 70% of Suzuki Powertrain, while Maruti holds the remaining stake. The latest labor unrest at Maruti Suzuki India follows a month-long spat between the company's management and the workers at its Manesar factory, which caused a production loss of Rs 600 crore ($122 million) and affected output of three car models. Maruti halted operations at Manesar on 29 August 2011 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.

Maruti Suzuki India's total sales declined 20.8% to 85,565 vehicles in September 2011 over in September 2010 due to the incessant labour strike in its Manesar plant in Haryana.

Car sales in India fell 1.8% in September, an industry body said on Monday, as rising interest rates and vehicle costs hurt demand in the world's second-fastest growing auto market after China. India's automakers sold 165,925 cars in September, according to data released by the Society of Indian Automobile Manufacturers (SIAM). Sales of trucks and buses, a key pointer to the country's economic activity, rose 18.05% to 70,634 in September, SIAM said.

IT stocks rose after Telecom and Information Technology Minister Kapil Sibal on Friday, 7 October 2011, said that the government is considering offering tax incentives to software exporters once the Direct Taxes Code is implemented in April 2012. The Direct Taxes Code will replace several existing laws relating to direct taxes such as income tax and corporate tax. Sibal also said he expects the country's software industry to generate nearly $300 billion in revenue by 2020, compared with the current $89 billion. The minister said he expects the new telecom and information and communications technology policies to be in place by the end of this year.

India's largest software services exporter TCS gained 1.58%. India's third largest software services exporter Wipro rose 4.42%.

India's second largest software services exporter Infosys rose 3.36%, extending Friday's 2.15% gains. Analysts expect Infosys to raise its earnings and revenue guidance in rupee terms for the year ending March 2012 (FY 2012) following a steep decline in rupee against the dollar recently. A weak rupee boosts revenue of IT firms in rupee terms as the IT sector derives a lion's share of revenue from exports. The rupee was hovering at 48.925/935 per dollar today, 10 October 2011, whereas Infosys' FY 2012 guidance issued in July 2011 was based on rupee dollar rate of 44.50. Infosys unveils Q2 results on Wednesday, 12 October 2011.

India's software industry will be able to meet its 16%-18% export revenue growth target for this financial year through March as global businesses continue to spend on technology, Infosys' executive co-Chairman S. Gopalakrishnan said on 4 October 2011. Gopalakrishnan said he is optimistic about the Indian software industry's growth prospects in the medium- to long-term though there would be "challenges" in the short-term. He didn't elaborate.

Interest rate sensitive realty stocks extended Friday's gains triggered by hopes a slowing economy could prompt the Reserve Bank of India to pause on rate increases this month. Purchases of both residential and commercial property are largely driven by finance. Indiabulls Real Estate, Unitech, HDIL and DLF gained by between 3.12% to 4.74%.

Power stocks also rose in a firm market. Power Grid Corporation of India, NTPC, and Tata Power Company rose by between 0.51% to 5.44%.

Bharat Heavy Electricals gained 2.42% on reports the company has won a power project worth Rs 4,071 crore from Singareni Collieries Company.

Coal India rose 1.68%. A news agency quoted Coal India chairman Nirmal Chandra Jha as saying that the company's workers have resorted to one-day strike today, 10 October 2011, demanding a higher annual bonus payout. The strike will result in a loss of 1 million metric tonnes of output and Rs 120 crore in revenue, Jha said. Employee unions called for the strike as their demand for an annual pay bonus of Rs 23,500 wasn't met. Jha said the company has already paid its 3,65,000 mine workers a bonus of Rs 17,000 despite little change in coal production.

Telecom stocks rose as telecom minister Kapil Sibal unveiled a draft of the government's new national telecommunications policy at the fag end of the trading session today, 10 October 2011. Bharti Airtel, Reliance Communications and Idea Cellular gained by between 1.72% to 2.38%.

Under the new policy, the government plans to end the current practice of allocating spectrum along with licenses and to offer bandwidth at a "market-determined price," Kapil Sibal, the minister for telecommunications and information technology, told reporters, without elaborating. The government will also audit the use of spectrum periodically for efficient use of the resource and allow pooling, sharing and trading of bandwidth, Mr. Sibal said. The much-anticipated proposed policy also talked about a "one-nation one-license" rule which makes roaming free for users.

FMCG stocks rose on expectations of higher rural sales after good rains this year. ITC, Hindustan Unilever, Marico, United Spirits, and Nestle India gained by between 0.5% to 1.39%.

Interest rate sensitive banking stocks gained on hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause on rate increases this month. India's largest private sector bank by net profit ICICI Bank rose 2.44% to Rs 844.45, extending Friday's 5.82% surge. The stock had hit a 52-week low of Rs 762.05 in intraday trade on 5 October 2011. India's second largest private sector bank by net profit HDFC Bank rose 1.06%.

Axis Bank rose 1.64% to Rs 1046.80, after Friday's 8.19% jump. The stock had hit a 52-week low of Rs 946.35 in intraday trade on 5 October 2011.

India's largest bank by branch network and net profit State Bank of India (SBI) rose 0.15% to Rs 1754.55 on bargain hunting. The stock had tumbled last week after a downgrade from rating agency Moody's Investors Service on 4 October 2011. Moody's cut bank financial strength rating (BFSR), or stand-alone rating of SBI, to D+ from C- because of concerns over its capital situation and deteriorating asset quality. The SBI stock had hit 52-week low of Rs 1,708.55 in intraday trade on 5 October 2011. SBI's non-performing assets were at a three-year high as of 30 June 2011, at 3.5% of loans, Moody's said on 4 October 2011. This will likely increase the bank's potential credit costs in the near-term, it said.

"Our expectations that non-performing assets are likely to continue rising in the near term--due to higher interest rates and a slower economy--have caused us to adopt a negative view of SBI's creditworthiness," Beatrice Woo, vice president and senior credit officer, Moody's Investors Service said, in a statement. Moody's also lowered its hybrid debt rating on the bank to Ba3 (hyb) from Ba2 (hyb), following the reduction in financial strength rating. The revised standalone rating carries a stable outlook and the hybrid rating a negative outlook, Moody's said.

SBI Chairman Pratip Chaudhuri last week said that the bank has no immediate plan to tap overseas debt markets but hopes to receive as much as Rs 10000 crore in equity capital infusion from the government by the end of the fiscal year through March 2012. SBI expects to get between Rs 3000 crore and Rs 10000 crore from the government to help shore up its capital base, Chaudhuri added. He also said that the bank does not see any need to pass on interest rate increases to customers as the bank's margins are strong. The Reserve Bank of India (RBI) last month raised key lending rate for the 12th time in the last 18 months to fight near double-digit inflation.

Anil Dhirubhai Ambani Group shares edged higher. Reliance Infrastructure, Reliance MediaWorks and Reliance Power gained by between 1.3% to 2.1%.

Reliance Capital surged 4.59% after company announced completion of the transaction for sale of a 26% stake in Reliance Life Insurance to Nippon Life Insurance. The entire transaction proceeds of Rs 3062 crore (USD 680 million) from Nippon Life Insurance have duly been received. The transaction pegs the total valuation of Reliance Life Insurance at approximately Rs 11,500 crore ($ 2.6 billion).

Oil exploration stocks rose along with crude oil prices. Oil rose as traders took heart from France and Germany's announcement that they had agreed a plan to shore up Europe's banks. New York's main contract, light sweet crude for delivery in November, added $1.33 or 1.58% to $84.31 a barrel in Asian electronic trading today. Cairn India, Oil India and ONGC rose by between 0.07% to 3.42%. Higher crude oil prices will result in higher realizations from crude sales for oil exploration firms.

Shares of offshore oil services providers gained as oil prices rose. Aban Offshore, SEAMEC, Great Offshore and Deep Industries gained by between 0.59% to 5.49%.

Shares state-run oil-marketing companies (PSU OMCs) fell as crude oil prices rose. Indian Oil Corporation (IOC) fell 1.68% and HPCL declined 0.11%. BPCL rose 0.45%. Higher crude oil prices will increase under-recoveries of state-run oil marketing companies (PSU OMCs) on domestic sale of diesel, LPG and kerosene at controlled prices. The government has already freed pricing of petrol. PSU OMCs, last month, raised petrol prices by Rs 3.14 to Rs 3.32 a litre recently in a bid to pass on the impact of a depreciating rupee, which has resulted in higher import cost. That was the ninth increase since petrol prices were decontrolled in June 2010.

Consumer durables stocks edged higher. Videocon Industries, Rajesh Exports, Gitanjali Gems and Titan Industries gained by between 1.06% to 8.8%.

Cals Refineries clocked highest volume of 1.61 crore shares on BSE. Resurgence Mines (82.56 lakh shares), Karuturi Global (50.93 lakh shares), RDB Rasayans (45.75 lakh shares) and Tata Motors (32.39 lakh shares) were the other volume toppers in that order.

SBI clocked highest turnover of Rs 164.69 crore on BSE. Tata Coffee (Rs 139.33 crore), RIL (Rs 59.24 crore), Tata Motors (Rs 55.25 crore) and Sun TV Network (Rs 55.02 crore) were the other turnover toppers in that order.

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. 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, UltraTech Cement, Exide Industries and Thermax unveil quarterly results on 20 October 2011. Engineering & construction major L&T, paints major Asian Paints and Godrej Consumer Products reveal Q2 results on 21 October 2011. Axis Bank unveils Q2 results on 22 October 2011. Titan Industries unveils Q2 results on 24 October 2011. NTPC and Dr. Reddy's Lab unveil Q2 results on 25 October 2011. Maruti Suzuki reports Q2 results on 29 October 2011. ICICI Bank, Dabur India, Colgate Palmolive (India) and BPCL unveil Q2 results on 31 October 2011. Cement major ACC and Aditya Birla Nuvo unveil quarterly results on 1 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.

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.

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.

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.

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 industrial production for August 2011 due on Wednesday, 12 October 2011 and that 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.

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, recently 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. RBI is scheduled to announce the half-yearly review of the monetary policy on 25 October 2011.

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.

European stocks edged higher on Monday, 10 October 2011, as euro-zone debt worries eased after assurances from French and German leaders that they will act to safeguard European banks. Key benchmark indices in UK, Germany and France were up by between 0.28% to 0.92%.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said on Sunday, 9 October 2011, that they have reached an agreement to recapitalize beleaguered European banks, though details of the plan won't be available until later this month.

Most Asian shares rose on Monday, 10 October 2011, as Europe's debt woes came back into focus at the end of last week, with credit-rating downgrades for Italy and Spain offsetting better-than-expected jobs data from the US. Key benchmark indices in Hong Kong, Indonesia, Singapore and South Korea rose by between 0.02% to 1.12%. China's Shanghai Composite fell 0.61%. Japanese and Taiwanese markets were closed for a holiday.

Trading in US index futures indicated that the Dow could jump 126 points at the opening bell on Monday, 10 October 2011. After nearly falling into bear-market territory, US stocks on Friday finished the week higher, building gains on encouraging jobs data and hopes that Europe is dealing with its debt crisis. Helping the US jobs picture Friday, the US Labor Department said on Friday employers last month added more jobs than analysts had expected. Nonfarm payrolls data for July and August also were revised upward. While the US unemployment rate held steady at 9.1%, the government's payrolls report supported other data that have lessened fears the US economy was heading into another recession.