Market seen halting four-day declining trend

The market is likely to end its four-day falling trend tracking positive Asian stocks. However, sentiment remains negative amid the ongoing euro zone debt crisis, sustained selling by foreign funds and slowdown in domestic growth. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 9.50 points at the opening bell.

Key benchmark indices edged lower for the fourth day in a row on Monday, 19 December 2011 as data showing sustained selling by foreign funds over the past few days, ongoing worries about euro-zone sovereign debt crisis and geopolitical worries arising from death of North Korean leader Kim Jong-il hurt sentiment adversely. The BSE Sensex lost 112.01 points or 0.72% to settle at 15,379.34, its lowest closing level since 21 August 2009.



From a recent high of 16,002.51 on 13 December 2011, BSE Sensex has declined 623.17 points or 3.89% in four trading sessions. The Sensex has fallen 744.12 points or 4.61% so far this month. The Sensex has slumped 5,129.75 points or 25.01% in calendar 2011. From a 52-week high of 20,664.80 on 3 January 2011, the Sensex has lost 5,285.46 points or 25.57%.

Sustained selling by foreign funds over the past few days weighed on sentiment. Foreign institutional investors (FIIs) sold shares worth Rs 450.37 crore on Monday, 19 December 2011, as per the provisional data from the stock exchanges. FII outflow totaled Rs 2371.71 crore in seven trading sessions from 9 to 19 December 2011, as per provisional data from the stock exchanges. The 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 was 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.

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.

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.

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.

The Union Cabinet on Sunday approved the draft of the path-breaking National Food Security Bill which seeks to provide subsidised foodgrains to over half of India's 1.2 billion population. The bill was a part of the Congress manifesto for the 2009 general elections and seeks to combat widespread hunger in the country. The bill is likely to cost Rs 2 lakh crore annually for the government.

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.

After Europe markets closed Friday Fitch Ratings affirmed its triple-A rating on France but cut its outlook to negative from stable. Fitch also put ratings of Italy, Belgium, Spain, Slovenia and Cyprus on negative credit watch on Friday, saying there was "heightened probability" of a downgrade in the near term.

Asia markets staged a pullback after initial decline on Tuesday despite a fall in US markets overnight. Reports said that US economy is expected to grow at over 2% in 2012. This helped shares in export-oriented countries to stay firm. Key benchmark indices in China, Hong Kong, Indonesia, Japan, Taiwan, Singapore and South Korea were up by between 0.13% to 0.72%.

US markets edged lower on Monday after European Union finance ministers failed to come up with the full amount of money pledged for a bailout fund. The Dow Jones industrial average dropped 100.13 points, or 0.84%, to 11,766.26. The S&P 500 slipped 14.31 points, or 1.1%, to 1,205.35 and the Nasdaq Composite index declined 32.19 points, or 1.2%, to 2,523.14.