Market likely to open firm on positive global cues; RBI policy eyed

The market is poised for a positive opening on Monday tracking positive global cues after elections in Greece eased fears of global financial turmoil. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 45 points at the opening bell. The Reserve Bank of India (RBI) mid-quarter policy review today, 18 June 2012 will be closely watched. Market men expect a 25 basis points reduction in its key policy rate viz. the repo rate by RBI at its mid-quarter policy review on Monday, 18 June 2012 to counter slowing economic growth. State Bank of India (SBI) has reportedly slashed interest rates on term loans, agriculture loans and loans to small and medium enterprises (SMEs) by 50-350 basis points (bps), effective 1 June 2012 to provide some relief to customers in these categories at a time of slowdown Tata Steel after market hours on Friday, 15 June 2012, made an open offer to shareholders of Tata Sponge Iron for acquiring upto 17.34 lakh shares at Rs 375 per share. The total consideration for the offer is Rs 65.02 crore, which is payable in cash. Separately, Tata Steel after market hours on Friday, 15 June 2012, also made an open offer to shareholders of The Tinplate Company of India for acquisition of upto 1.46 crore shares at Rs 60 per share. The total consideration for the offer is Rs 87.92 crore, which is payable in cash. Public sector oil marketing companies have reduced the prices of aviation turbine fuel (ATF) by 5%, effective 16 June 2012. As per reports, Indian companies have reported an average increase of about 10% in advance tax outgo in the April-June quarter. The increase in advance tax mop-up, which is a measure of companies' performance, comes at a time the economy is faced with sluggish growth and currency depreciation. Corporate entities pay 15% of their annual estimated tax liability in April-June, 30% in July-September and October-December each, and the rest by March 15. Advance tax payment of Reliance Industries (RIL) reportedly declined to Rs 770 crore in Q1 June 2012 from Rs 900 crore in Q1 June 2011. This is the first time in the past five years tax outgo of RIL has dipped below the previous year's figure. ONGC reportedly paid Rs 1300 crore advance tax in the first quarter against Rs 1070 crore in the year ago period. State Bank of India reportedly paid an advance tax of Rs 1170 crore in Q1 June 2012, up from Rs 1100 crore from Q1 June 2011. HDFC Bank reportedly paid an advance tax of Rs 500 crore in Q1 June 2012 against Rs 400 crore paid in Q1 June 2012. ICICI Bank too saw its tax payout reportedly rising 25% to Rs 500 crore in Q1 June 2012 over Q1 June 2011. HDFC's advance tax payment reportedly rose 17.64% to Rs 300 crore in Q1 June 2012 over Q1 June 2011. Among private sector banks, IndusInd Bank reportedly paid an advance tax of Rs 60 crore in Q1 June 2012 against Rs 40 crore in Q1 June 2011. Yes Bank's advance tax payment reportedly rose 16.66% to Rs 70 crore in Q1 June 2012 over Q1 June 2011. Kotak Mahindra Bank's advance tax payment reportedly rose by 25% to Rs 75 crore in Q1 June 2012 over Q1 June 2011. Among public sector banks, Bank of Baroda's advance tax payment reportedly rose 11.11% to Rs 300 crore in Q1 June 2012 over Q1 June 2011. Bank of India advance tax payment reportedly rose 2.94% to Rs 175 crore in Q1 June 2012 over Q1 June 2011. Among auto firms, M&M's tax outgo reportedly stood flat at Rs 90 crore. Bike maker Bajaj Auto tax outgo reportedly rose to Rs 150 crore from Rs 125 crore. Tata Motors tax outgo reportedly fell to Rs 55 crore from Rs 60 crore. TCS's tax outgo reportedly rose to Rs 320 crore from Rs 250 crore. Tata Steel tax outgo reportedly rose to Rs 270 crore from Rs 260 crore. Hindustan Unilever's advance tax outgo reportedly rose to Rs 140 crore from Rs 95 crore. Cipla's advance tax payment reportedly rose 28.57% to Rs 45 crore in Q1 June 2012 over Q1 June 2011. L&T saw its outgo reportedly falling to Rs 160 crore from Rs 180 crore, Hindalco to Rs 50 crore from Rs 70 crore and Castrol to Rs 38 crore from Rs 40 crore. Among cement makers, UltraTech saw its outgo reportedly nearly trebling to Rs 110 crore from Rs 40 crore in Q1 June 2012 over Q1 June 2011, Ambuja Cements paid Rs 60 crore from Rs 50 crore and ACC paid Rs 45 crore from Rs 40 crore. Key benchmark indices surged on Friday, 15 June 2012, to attain their highest closing level in over 6 weeks as stocks rose across the globe. The BSE Sensex was up 271.95 points or 1.63% to 16,949.83, its highest closing level since 3 May 2012. Foreign institutional investors (FIIs) bought shares worth a net Rs 339 crore on Friday, 15 June 2012, as per provisional figures from the stock exchange. Meanwhile, the Congress party named Finance Minister Pranab Mukherjee as its nominee for president on Friday, capping a week of political turmoil that exposed the fragility of a coalition government that has lurched between crises as the economy sputters. Mukherjee is expected to step down by 24 June 2012, and Prime Minister Manmohan Singh could take charge of his portfolio for the next several months. Prime Minister Manmohan Singh early this month laid out ambitious infrastructure development plans for the current fiscal year, in an effort to counter criticism over a perceived policy paralysis that has led India into its worst slowdown in nearly a decade. Inflation based on the wholesale price index (WPI) accelerated to 7.55% in May 2012 from a year earlier as prices of manufactured products and fuel increased, adding to concerns of a rise in price pressures. Inflation was at 7.23% in April 2012. The government also raised WPI inflation reading for March 2012 to 7.69% from 6.89% reported earlier. Core inflation, or non-food manufacturing inflation, was below 5% in May 2012, far lower than the headline reading. Inflation in India has moderated from 10% in September 2011, but still remains above the central bank's comfort level. The RBI aims to contain inflation expectations below 4.5%. The government on Thursday, 14 June 2012, raised the minimum support prices of various kharif (June-October) crops 2012 in the range of 15.3% to 53.1%, which is expected to further fuel persistently high food inflation in the coming months. Food inflation has been in double digits for around a year and has been contributing significantly to overall inflation. Easing of core inflation, falling crude oil prices, weak industrial production data for April 2012, sharp deceleration in GDP growth in Q4 March 2012 and latest data showing decline in exports in May 2012 have raised expectations that the central bank will cut interest rates to revive economic growth. The country's crucial monsoon rains were 50% below average in the week to June 13, the weather office said on Thursday, a second week of scant rain and confirmation the four-month season has got off to a slow start. The India Meteorological Department (IMD) has forecast average rainfall for the whole June to September season -- the third year in a row to avoid a drought. The monsoon rains are important for farm output and economic growth as about 55% of the south Asian nation's arable land is rain-fed, and the farm sector accounts for about 15% of a nearly $2-trillion economy. Global rating agency Standard & Poor's last week warned that India could become the first BRIC nation to lose its investment-grade rating if the South Asian country doesn't revive its growth and push the pedal on reforms. Setbacks or reversals in India's path toward a more liberal economy could hurt its long-term growth prospects and therefore its credit quality, Joydeep Mukherji, S&P's credit analyst, stated in a report titled 'Will India Be the first BRIC Fallen Angel. S&P currently rates India BBB-minus, just one notch above junk. The other three BRIC group of emerging nations--Brazil, Russia and China--are also rated investment-grade. S&P had in April this year cut the outlook on India's long-term credit rating to negative from stable and warned that the country could lose its investment-grade status if the government fails to bring its fiscal house in order. Data released on 31 May 2012 showed India's economic growth slowed to its weakest pace in nine years in the January-March quarter, when it expanded 5.3% from a year earlier. For the fiscal year ended March 31, the economy grew 6.5%, below the 6.9% expansion the government had projected. US Treasury Secretary Timothy Geithner will meet India's finance minister in Delhi in June to strengthen economic and financial ties between the two countries, the US Treasury Department said early last week. Moody's has last week cut the ratings of 11 European banks and said it would cut again if Greece ditched the euro, kicking off a long-awaited round of downgrades for major European institutions. Moody's Investors Service said it had taken action against five Dutch banking groups, three French banks and one each from Belgium and Luxembourg. A key summit of the European Union is scheduled on 28 and 29 June 2012 to discuss the ongoing European debt crisis. The European Central Bank stands ready to provide support to the euro-zone system, said its President, Mario Draghi, in prepared statements at a speech on Friday. "The Eurosystem will continue to supply liquidity to solvent banks where needed," he said at the ECB Watcher's conference. His comments come amid reports that central bankers are ready to take measures to keep liquidity flowing in international markets should the results of Sunday's Greek elections trigger a credit crunch. Draghi said the objectives of three-year long-term refinancing operations (LTROs) have "largely been met." However, he said, the full impact of LTROs needs time to unfold. He added that April bank lending data indicates a general improvement in bank lending conditions and drop in net tightening of credit standards. He also said there is no inflation risk presently in any euro-area country. Bank of England (BOE) Governor Mervyn King said on Thursday that the UK central bank will activate a sterling liquidity facility to aid banks, and plans to have a form of credit easing operating to boost lending as the case for looser policy is growing. The BOE will start holding auctions of sterling liquidity with a maturity of six months. King said that the lending plan will provide banks with funds below current market rates. The BOE Governor also said that the UK central bank would not expand its quantitative easing (QE) program into private-sector assets. Asian stocks edged higher on Monday after elections in Greece eased fears of global financial turmoil. A report citing Greece elections held on Sunday showed that pro-bailout parties won enough seats to form a joint government, putting to ease fears of an imminent Greek exit from the 17-nation euro currency union that could have hurt global economy. Key benchmark indices in China, Hong Kong, Taiwan, Japan, Indonesia, Singapore and South Korea were up by 0.53% to 2.09%. Sunday's crucial election was the second in six weeks in Greece after May 6 polls failed to produce a government, stirring fears that the political stalemate would paralyse efforts to bring Greece back from the brink. US markets edged higher on Friday ahead of Greece elections on rising optimism that major world central banks will take coordinated action if the closely watched election results in market turmoil. The Dow Jones Industrial Average rose 115.26 points, or 0.91%, at 12,767.17. The Standard & Poor's 500 index was up 13.74 points, or 1.03%, at 1,342.84. The Nasdaq Composite index gained 36.47 points, or 1.29%, at 2,872.80. China's recent interest rate cut and the relaxation of controls on rates is a "giant leap" for financial sector reforms, even though the move could hurt domestic banks' profits in the short run, Standard & Poor's Ratings Services said Friday. The People's Bank of China last week announced reforms to the way it sets interest rates, allowing banks to offer rates to depositors of up to 110% of the benchmark deposit rate and provide loans of at least 80% of the benchmark lending rate. S&P said the move to liberalize the country's interest-rate regime would make China's banking system more efficient in allocating credit and lead to a more diversified loan portfolio, which could outweigh the short-term strain on Chinese banks' profitability. The Bank of Japan (BoJ) on Friday left its benchmark interest rate unchanged in a range between 0% and 0.1% and also didn't announce any fresh monetary stimulus, avoiding further policy action ahead of the weekend elections in Greece. The decisions were unanimous at the policy-setting board of the central bank, and in line with market expectations. The BoJ cited nervousness in the global financial markets, mainly over the European debt crisis, and that particular attention should be paid to these developments for the time being. The Federal Open Market Committee holds its next policy meeting on June 19-20. It remains to be seen if the Fed extends Operation Twist -- a plan expiring this month that lengthens the average duration of bonds in the Fed's portfolio. The Fed launched Operation Twist in September 2011 to lower long-term borrowing costs. The 7th Group of 20 industrial and developing nations summit is scheduled to be held in Los Cabos, Mexico on 18 and 19 June 2012 to discuss current affairs such as poverty, youth unemployment and environmental issues. The leaders are also likely to discuss the ongoing European debt crisis.