Market may open lower on weak Asian stocks; inflation data in focus

The market may open lower on weak Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 43.50 points at the opening bell. Asian shares fell today as the Federal Reserve refrained from announcing new stimulus measures.

On the macro front, data due today, 14 December 2011, on headline inflation for November 2011 will provide cues on the central bank's likely policy stance at its mid-quarter monetary policy review on Friday, 16 December 2011. Inflation based on the wholesale price index (WPI) is projected to ease to 9% in November 2011, as per the median estimate of the poll carried out by Capital Market. Inflation, as measured by the wholesale price index (WPI), stood at 9.73% in October 2011 and 9.72% in September 2011.



Easing of inflation pressure will provide room for RBI to cut interest rates next year to support flagging economic growth. Food inflation in India slid further in the fourth week of November, data released by the Government showed last week. Food inflation declined to 6.6% in the week ended November 26 from 8% in the preceding week. Food inflation has been a key driver of headline inflation in India over the past few years.

Interest rate sensitive auto, banking and realty stocks will be watched ahead of inflation data due today.

Key benchmark indices snapped a three-day losing streak on Tuesday, 13 December 2011 on speculation the Reserve Bank of India (RBI) will start cutting interest rates next year to support flagging economic growth. The BSE Sensex jumped 132.16 points or 0.83% to settle at 16,002.51, its highest closing level since 9 December 2011.

Foreign institutional investors (FIIs) sold shares worth Rs 560.80 crore on Tuesday, 13 December 2011, as per the provisional data from the stock exchanges. FIIs had sold shares worth Rs 428.30 crore and Rs 248.57 crore on Monday, 12 December 2011 and on Friday, 9 December 2011 respectively. The recent outflow followed sustained inflow early this month.

IT stocks will be in action as the rupee touched a record low for the second day in a row on Tuesday as both foreign and domestic investors snapped up dollars to reduce exposure to India's cooling economy. The partially convertible rupee ended at 53.22/23 to the dollar, down 0.7% from Monday's close of 52.84/85, after touching a record low of 53.52 during the day. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.

The third advance tax installment is due tomorrow, 15 December 2011, which may provide cues on Q3 December 2011 corporate earnings. Advance taxes are collected in four installments -- 15% by 15 June; 40% by 15 September; 75% by 15 December and 100% by 15 March.

The cabinet reportedly Tuesday deferred to next week a decision on an ambitious Food Security Bill. The food security program promises to give cheap food grains to 63.5% of the country's 1.2 billion population. It would guarantee seven kilograms of wheat, rice and coarse grains to each member of a poor family every month, and at least three kgs to those who are slightly better off. The grains would be supplied to the poor at a subsidized price of three rupees/kg for rice, two rupees/kg for wheat and one rupee/kg for coarse grains.

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.

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 on Friday, 9 December 2011, 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 on Friday. Exports between April and November are seen up 33.2 percent from a year earlier to $192.7 billion, Khullar said, citing provisional data.

The Reserve Bank of India (RBI) 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%. RBI said 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.

Asian shares drifted lower on Wednesday after the Federal Reserve failed to take any new steps to stimulate growth and offset the chilling effects of Europe's still-unresolved debt crisis. Key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore, and South Korea fell by between 0.14% to 0.56%. But, Taiwan's Taiwan Weighted rose 0.06%.

U.S. stocks dropped Tuesday as Federal Reserve officials didn't take immediate action to bolster the economy and as domestic retail-sales data offered a disappointing view on the holiday-shopping season. U.S. retail sales grew less than expected in November after solid gains during the two previous months. Additionally, data showed that small-business optimism improved in December for a third straight month, as the outlook for the labor market improved and as expectations for real sales gains turned positive.

The Federal Reserve has maintained a status quo on its monetary policy, keeping borrowing costs at record low and holding the stimulus measures. The Federal Open Market Committee (FOMC) voted 9-to-1 for keeping interest rates at record lows at least through mid-2013, while also holding the line on ongoing stimulus policies. “The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability,” the FOMC said in a statement.

US House voted 234 to 193 on Tuesday to approve a payroll tax-cut package that also includes an oil-pipeline provision opposed by the White House. The extension of the tax cut may remain in a limbo with about two weeks remaining until it expires. The bill is unlikely to pass the Senate due to strong opposition from Democratic leaders, setting the stage for another political showdown ahead of the holiday recess. The White House says that President Barack Obama will veto the bill