Market likely to open lower tracking negative Asian equities

The market is poised for a subdued start mirroring weakness in Asian equities. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 38.50 points at the opening bell.

Key benchmark indices extended losses for the third consecutive trading session on Friday, 16 December 2011 to hit their lowest level in more than two years led by a decline in capital goods stocks. The BSE Sensex lost 345.12 points or 2.18% to 15,491.35, its lowest closing level since 3 November 2009.

The Sensex has fallen 632.11 points or 3.92% so far this month. The Sensex has slumped 5,017.14 points or 24.46% in calendar 2011. From a 52-week high of 20,664.80 on 3 January 2011, the Sensex has lost 5,173.45 points or 25.03%.



Data showing selling by foreign funds recently weighed on sentiment. Foreign institutional investors (FIIs) sold shares worth Rs 220.25 crore on Friday, 16 December 2011, as per the provisional data from the stock exchanges. FII outflow totaled Rs 1921.34 crore in six trading sessions from 9 to 16 December 2011, as per provisional data from the stock exchanges. The recent outflow followed sustained inflow early this month.

At its mid-quarterly monetary policy review meet on Friday, 16 December 2011, the Reserve Bank of India (RBI) left its main lending rate unchanged in order to support faltering economic growth as inflation shows signs of cooling. The central bank also refrained from cutting the cash reserve ratio (CRR) despite tight liquidity in the system. The repo rate has been left steady at 8.5% after increasing it 13 times since March 2010. The bank rate also remains static at 6%. The central bank kept its end-March 2012 inflation forecast unchanged at 7%.

While inflation remains on its projected trajectory, downside risks to growth have clearly increased, RBI said in a statement. The guidance given in the second quarter review of the monetary policy was that, based on the projected inflation trajectory, further rate hikes might not be warranted. In view of the moderating growth momentum and higher downside risks to growth, this guidance is being reiterated, RBI said. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth, RBI said.

However, it must be emphasized that inflation risks remain high and inflation could quickly recur as a result of both supply and demand forces, the central bank said in statement. Also, the rupee remains under stress, RBI said. The timing and magnitude of further actions will depend on a continuing assessment of how these factors shape up in the months ahead, RBI said. The RBI has raised rates 13 times since March 2010.

RBI said there are currently no significant signs of stress in the money market. However, in view of the fact that borrowings from the Liquidity Adjustment Facility (LAF) are persistently above the Reserve Bank of India's comfort zone, further open market operations (OMOs) will be conducted as and when seen to be appropriate, RBI said.

As per reports, advance taxes for the third quarter from corporates headquartered in Mumbai have risen 10%. Cements and pharma companies have reported surge in advance tax payment for the third quarter. Advance taxes are collected in four installments -- 15% by 15 June; 40% by 15 September; 75% by 15 December and 100% by 15 March.

Credit rating agency Moody's Investors Service on 14 December 2011 said that the sharp decline in the value of the Indian rupee against the dollar is generally exerting only a moderate impact on rated Indian companies. Risks for companies holding large amounts of dollar denominated debt are also manageable in the near term, given that debt maturities are limited for this time frame, Moody's said in a new report. This means Indian companies rated by Moody's do not have a significant dollar outflow at a time when the Indian rupee is losing ground. Moody's latest assessment comes as the rupee continued its free fall against the dollar on 15 December 2011, sinking to a new record low for the fourth straight day, as investors fled risk-sensitive currencies due to escalating concerns over Europe's sovereign debt crisis.

The Reserve Bank of India (RBI) took steps on 15 December 2011 to arrest the free-fall of the rupee after the local currency hit a new record low against the dollar for the fourth consecutive day. The new currency rules include reducing the net amount of US dollar-versus-rupee trade that authorized foreign-exchange dealers can hold on their books. Another measure of the bank's new rules would limit the amount of currency hedging by importers, who typically buy dollars.

Continuing further in its fight to lift the rupee, the Reserve Bank of India (RBI) late on Friday deregulated non-resident external (NRE) rupee deposits and ordinary non-resident (NRO) accounts, opening the gates to a flood of dollars. While NRE deposits can be repatriated in dollars, NRO monies can't, and are held in rupees in India. The RBI said banks are free to determine the interest rates they offer on both savings deposits and term deposits. So far, there was a ceiling on how much banks can pay on such deposits London Inter-bank Bid Offer Rate (libor) plus 100 basis points. This cap is gone now, but the RBI said banks can pay only interest rates comparable to local deposit rates.

Meanwhile, market regulator Sebi is reportedly considering a proposal to allow the companies to sell shares through an all-electronic Initial Public Offer (e-IPO), wherein investors would be able to bid for shares electronically and without the need for signing any papers physically. The proposed move would help in fast-tracking the IPO process and lower the costs, besides allowing the investors to apply for shares and buy them at a click on computers without the need for signature on bulky physical documents.

Noisy protests by opposition members demanding removal of Home Minister P. Chidambaram stalled proceedings in parliament Friday without any significant business, and forced adjournment till Monday of both houses. The winter session which began on 22 November 2011 is to end on 22 December 2011.

The Union Cabinet on Sunday cleared the much-awaited draft food security Bill at a specially convened meeting, brightening the prospect of providing legal entitlement of food to three-fourth of the country's rural population and half its urban dwellers. As per reports, the bill is now likely to be presented to Parliament in the next few days and would be referred to the parliamentary standing committee. The proposed bill is likely to cost Rs 2 lakh crore annually for the government. The bill is expected to make a provision for providing not less than 7 kilogram (kg) of food grains per person per month for the priority household. Around 48% of all rural households and 28% of all the urban households shall be selected as priority households. Under which, the families will get rice at not less than Rs 3 per kg, wheat Rs 2 per kg and coarse grains not less than Rs 1 per kg. Moreover, not less than 75% of rural households and at least 50% of urban households will be entitled to get food grains at subsidized prices, which will include priority and general households. It is also proposed to provide not less than 3 kg of food grains per person per month for the general household per person per month.

A government statement in parliament last month dashed hopes of a relief in securities transaction tax (STT). Junior finance minister S.S. Palanimanickam has said that the government has no proposal to lower the securities transaction tax (STT). There has been a speculation that the government will reduce STT in Union Budget 2012-2013 in a bid to revive sagging volumes on the bourses. Palanimanickam said in a written reply to Rajya Sabha that the securities transaction tax receipts had declined by around 18% to Rs 2960 crore during the first six months in the current fiscal year from a year ago period.

The government last week said that the Rs 40000-crore stakes sale target in state-run companies would be hard to achieve this fiscal year, while tax receipts would suffer from the impact of the global slowdown.

Asian markets edged lower on Monday on fears of a possible downgrade of France and six other European countries, saying the plan laid out is inconclusive and may derail the recovery of the global economy. Key benchmark indices in China, Hong Kong, Indonesia, Japan, Taiwan, Singapore and South Korea were down by between 0.23% to 2.27%.

The European finance ministers today will seek to meet a self-imposed deadline for drawing additional aid to the debt crisis and to form new budget rules as investor confidence that a comprehensive solution is achievable wanes. The meeting will discuss 200 billion euros in additional funding through the International Monetary Fund and the mechanics of a so-called fiscal compact that was negotiated at a 9 December 2011 European Union summit.

US stocks settled on a mixed note on Friday, 16 December 2011, with intraday rally fizzling as continued jitters surrounding Europe's debt crisis weighed on investor sentiment. The Dow Jones Industrial Average dropped 2.42 points, or 0.02%, to 11866.39. The Standard & Poor's 500-stock index rose 3.89 points, or 0.32%, to 1219.65 and the Nasdaq Composite index rose 14.32 points, or 0.56%, to 2555.33.

Fitch Ratings on Friday placed its ratings on six euro-zone nations including Spain and Italy on watch for downgrade after it concluded a "comprehensive solution" to the region's debt crisis is "technically and politically beyond reach."

During last week, Fitch Ratings had also downgraded seven global banks based in Europe and the United States, citing "increased challenges" in the financial markets. Bank of America Corp., Goldman Sachs and Citigroup had their credit grades cut by Fitch. Barclays, Credit Suisse, Deutsche Bank and BNP Paribas also had their ratings lowered by Fitch.