Market may open flat to slightly higher; RBI policy eyed

The market may open flat to slightly higher on firm Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 5 points at the opening bell.

The Reserve Bank of India (RBI) is widely expected to hold its key policy rate steady after a mid-quarter review of the monetary policy today, 16 December 2011. The RBI had announced a 25 basis points hike in its key policy rate viz. the repo rate to 8.5% after half-yearly review of the monetary policy on 25 October 2011. The central bank cut its GDP growth forecast for the current fiscal year through March 2012 to 7.6% from 8% earlier. But it retained its March-end inflation projection of 7%. Interest rate sensitive banking, realty and auto stocks will be in focus ahead of RBI's monetary policy.



Key benchmark indices fell for the second straight session to settle at their lowest level in nearly three weeks on Thursday, 15 December 2011 as data showing selling by foreign funds recently weighed on sentiment. The BSE Sensex lost 44.67 points or 0.28% to settle at 15,836.47, its lowest closing level since 25 November 2011.

Foreign institutional investors (FIIs) sold shares worth Rs 323.28 crore on Thursday, 15 December 2011, as per the provisional data from the stock exchanges. FII outflow totaled Rs 1701.09 crore in four trading sessions from 9 to 15 December 2011, as per provisional data from the stock exchanges. The recent outflow followed sustained inflow early this month.

Aviation stocks could be in limelight on reports that the oil firms have slashed the aviation turbine fuel prices by 1.38%. Jet fuel forms more than 40% of the operating costs of airliners.

Advance taxes for the third quarter from corporates headquartered in Mumbai rose by a mere 10%, rendering the targeted tax collection set by the government for March 31, 2012, a difficult target to achieve. 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 Wednesday, 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 Thursday, 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.

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.

Food inflation declined to 4.35% in the week ended December 3, its lowest in nearly four years, from 6.6% in the preceding week, the Commerce & Industry Ministry said on Thursday. Food inflation stood at 10.78% in the corresponding week last year. Inflation in the Primary Articles group fell to 5.48% in the week under review, from 6.92% in the week ended November 26. It was at 15.21% in the year-ago period. Inflation in the Fuel & Power group stood at 15.24% in the week ended December 3, down a tad from 15.53% in the previous week. It was at 10.81% in the comparable week of the previous year.

Chief economic adviser to the finance ministry Kaushik Basu on Thursday, 15 December 2011, said that he expects food inflation to drop to 3% within a month. However, the gradual easing would be due to seasonal factors and a comparison with high index levels last year, he added.

The annual inflation declined in November 2011 from the previous month but remained above the 9% mark, data released by the government showed on Wednesday, 14 December 2011. Inflation, as measured by the wholesale price index (WPI), was at 9.11% in November as against 9.73% in October, the Union Commerce & Industry Minister said Wednesday. Inflation figure for September 2011 was revised upwards to 10% from initial estimate of 9.72%.

RBI had said in October 2011 that the projected inflation trajectory indicates that the inflation rate will begin falling in December 2011 (January 2012 release) and then continue down a steady path to 7% by March 2012. It is expected to moderate further in the first half of 2012-13. This reflects a combination of commodity price movements and the cumulative impact of monetary tightening. Further, moderating inflation rates are likely to impact expectations favourably.

Industrial production shrank 5.1% in October versus 11.3% growth in the same period a year earlier, data released by the Commerce Ministry showed on Monday, 12 December 2011. It was the first decline in industrial production in more than two years. Industrial output last fell in June 2009, when it shrank 1.8%. Manufacturing output, which has a 75.5% weight in the index of industrial production, fell 6% from a year earlier in October, compared with a 2.4% rise the previous month. Mining output shrank 7.2%, after falling 5.6% in September. September's industrial production growth was revised upwards marginally to 2%, from 1.9% earlier.

The government last week cut its economic growth forecast to 7.25%-7.75% from the previous 8% for the current year through March 2012 (FY 2012), and it also warned of possible fiscal slippage caused by global uncertainties. In a mid-year economic review presented in parliament on Friday, 9 December 2011, the finance ministry said that commitments on account of additional requirement on various subsidies will make it difficult to adhere to the total expenditure target for the current year. However the government promised to keep the slippage to a minimum as it broadly adheres to its long-term fiscal rigor, the report added. The government had pegged fiscal deficit at 4.6% of gross domestic product when it presented the Union Budget 2011-2012 in February 2011.

The reduction in GDP growth forecast for FY 2012 comes after the economy grew an annual 6.9% in the quarter ending September 2011, its slowest pace in more than two years. The government said headline inflation would decline from December 2011, expecting it to ease to 7% by March 2012.

The government also 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. The government is considering options other than share sales to meet its divestment target in state-run companies for the fiscal year ending March, the junior finance minister said on Friday.

India's manufacturing sector expansion slowed in November as factory output grew at its slowest pace in nearly three years although export demand should provide some cheer for factories, a survey showed on 1 December 2011. The HSBC Markit India Manufacturing PMI fell to 51 in November from 52 in October, but has stayed above the 50 mark that divides growth from contraction for 32 months. The PMI was 50.4 in September.

On the flip side, India's services sector expanded in November for the first time in two months as new business accelerated despite persistent inflationary pressures, a survey showed on Monday. The seasonally adjusted HSBC Markit Business Activity Index -- based on a survey of around 400 firms -- stood at 53.2 in November, above the 50-mark that separates growth from contraction. It had fallen to 49.1 in October after contracting for the first time in more than two years in September to 49.8. Despite tight monetary conditions, the sub-index for new business accelerated to 52.3 in November from 51 in October, driving the turnaround in the service sector.

India's November exports are seen at $22.3 billion while imports for the month are seen at $35.9 billion, leaving a trade deficit f $13.6 billion, Trade Secretary Rahul Khullar told media reporters recently. Exports between April and November are seen up 33.2 percent from a year earlier to $192.7 billion, Khullar said, citing provisional data.

Asian shares edged up on Friday, as signs of strength in the U.S. economy temporarily broke through gloom over the European debt crisis that had driven a sell-off in riskier assets over the past three days. Key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore and South Korea rose by between 0.02% to 0.81%. Taiwan's Taiwan Weighted Aerage fell 0.09%.

U.S. stocks rose modestly on Thursday, after a fall in U.S. unemployment, a stronger-than-expected rise in regional factory activity and better-than-forecast results from FedEx Corp painted an improving picture of the economy.Jobless claims in the US dropped to a three and a half year low last week lent to the cheer.

Fitch Ratings, the third-biggest of the major credit rating agencies, has 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.