Market seen opening firm on positive Asian equities

The market is likely to open higher as Asian stocks rose on hopes that the Federal Reserve will agree to extend stimulus measures to support growth in the US economy. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 10.50 points at the opening bell. Key benchmark indices surged in choppy trade on Tuesday, 19 June 2012 as European stocks rose after better-than-expected results for a Spanish debt auction and on rumours that the European Central Bank would prop up Spanish government bonds, after yields on 10-year Spanish government bonds closed above 7% on Monday, 18 June 2012. The BSE Sensex jumped 153.97 points or 0.92% to settle at 16,859.80, its highest closing level since 15 June 2012. Foreign institutional investors (FIIs) sold shares worth a net Rs 93.30 crore on Tuesday, 19 June 2012, as per provisional figures. Earlier, FIIs bought shares worth a net Rs 2693.50 crore from secondary equity markets during 9 trading sessions from 6 June to 18 June 2012, as per data from Securities & Exchange Board of India (Sebi). A report indicated that foreign direct investment (FDI) has slumped by 41% to $1.85 billion in April 2012 as compared to $3.12 billion in April 2011 due to poor global economic scenario. However, in March 2012, the country had received the highest ever monthly inflows of $ 8.1 billion. Earlier, highest FDI of $ 5.65 billion was received in June 2011. The sectors which received large FDI inflows in April 2012 include services ($449 million), pharmaceuticals ($359 million), construction ($120 million) and power ($68 million). In April 2012, India received highest FDI from Mauritius ($633 million), U.K. ($366 million), the Netherlands ($357 million), Singapore ($146 million) and Cyprus ($69 million). Meanwhile, India on Tuesday announced a $10 billion contribution to the IMF's additional $430 billion financial firewall to help the debt-wracked 17-nation euro zone so that the faltering world economy is protected against the spread of any financial contagion. Prime Minister Manmohan Singh at the G20 Plenary Session on Monday, 18 June 2012, said that like other emerging economies, Indian economy, too, has slowed down. "The global downturn and especially the impact on capital flows have played their part. Internal constraints have also affected performance and we are working to correct them. Our growth rate in 2011-12 declined to 6.5% from the level of 8.4% in the previous year. This may look like a reasonable figure, given growth rates being experienced in the rest of the world, but our public is impatient for a return to high growth and faster jobs creation. The fundamentals of the Indian economy remain strong and we are confident of bringing back the rhythm of high growth of 8-9% per annum", Singh said. "Investment has been affected by the adverse global climate which impacts both foreign and domestic investors. We are taking steps to revive investor sentiment. We are determined to create an environment that would boost investor sentiment and promote an atmosphere conducive to enterprise and creativity. Our policies will be transparent, stable and designed to provide a level playing field to both domestic and foreign investors", Singh added. "We are focusing heavily on infrastructure investment and in this context we have set ambitious targets to keep infrastructure investment on track and also put in place a problem resolution mechanism to overcome implementation bottlenecks. Like other countries, we too allowed the fiscal deficit to expand after 2008 to impart a stimulus. We are now focussing on reversing the expansion. This will require tough decisions, including on controlling subsidies, which we are determined to take. In this context, I would like to mention a landmark effort underway in India to provide unique identity numbers for all residents with capture of biometric data. This massive database covering over a billion people will facilitate delivery of a whole range of financial and other services, through effective targeting and reduced leakages in subsidy schemes", Singh said. Fitch Ratings on Monday, 18 June 2012, cut its ratings outlook on India's sovereign debt rating to negative from stable, saying the country's growth potential gradually will deteriorate if efforts to create a more positive operational environment for business and private investments aren't hastened. The announcement was made after trading hours on Monday, 18 June 2012. The ratings company said the revision also reflects India's slow progress on its fiscal consolidation, specifically in the reduction of its central government's debt despite overall financial improvement in the state governments. The ratings company pointed to inflation pressures and weak public finances, underscoring the need for government reforms and policies that can assist long-term growth of the economy. Fitch said India faces an awkward combination of slowing growth and still-elevated inflation. Fitch said India's general elections, which are due in 2014, could result in pressure to further loosen fiscal policy and could weaken its public finances even more. Fitch said such a loosening of fiscal policy, which leads to an increase in the government debt compared to the country's output, would result in a downgrade of India's sovereign debt ratings. An improvement in the country's investment climate as well as fiscal consolidation and budget reform would be positive for its ratings. Fitch backed its triple-B-minus rating on India, which is one notch above junk level. The Reserve Bank of India (RBI) on Monday, 18 June 2012, kept its policy rate viz. the repo rate unchanged at 8% after a mid-quarter monetary policy review, contrary to market expectations of a 25 basis points reduction. The RBI said the role of interest rates in the current slowdown is relatively small, and that a rate cut at this stage could exacerbate inflationary expectations. The RBI said that the evolving growth-inflation dynamic will continue to influence its stance on interest rates. Recognizing that the global situation is turbulent, the Reserve Bank of India stands ready to use all available instruments and measures to respond rapidly and appropriately to any adverse developments, the RBI said in a statement. The rate pause follows a half percentage point cut in April 2012, the first step toward unwinding the 3.75% rate increases that the RBI carried out between March 2010 and October 2011. The RBI said that the core inflation has moderated, reflecting demand conditions and lower pricing power. However, both headline and retail inflation rates are rising, which have a bearing on inflation expectations, RBI said in a statement. Future actions will depend on a continuing assessment of external and domestic developments that contribute to lowering inflation risks, RBI said. Management of liquidity remains a priority of the central bank, RBI said. Even as the liquidity situation converges to the comfort zone, the Reserve Bank of India will continue to use open market operations (OMOs) as and when warranted to contain liquidity pressures, RBI said. The RBI left the cash reserve ratio, or the percentage of deposits that banks must park with the RBI, unchanged at 4.75%. The central bank said that domestic producers have gained competitiveness over foreign producers as a result of the depreciation of rupee against the dollar over the past several months. Over time, this should result in expanding exports and contracting imports, thus acting as a demand stimulus, RBI said in a statement. The annual consumer price inflation remained unchanged in May 2012 at 10.36%, government said in a statement on Monday, 18 June 2012. In April 2012, consumer prices provisionally rose 10.36%. Consumer price-based food inflation, however, accelerated to 10.66% in May 2012 from 10.18% in April 2012. The RBI on Monday, 18 June 2012, said that with a view to enhancing the credit flow to the export sector, it has been decided to enhance the eligible limit of the Export Credit Refinance (ECR) facility for scheduled banks (excluding RRBs) from 15% of the outstanding export credit eligible for refinance to 50%, effective fortnight beginning 30 June 2012. This will provide additional liquidity support to banks of over Rs 30000 crore, RBI said. The rate of interest charged on the ECR facility will continue to be the prevailing repo rate under the Liquidity Adjustment Facility (LAF), which is currently 8%. Meanwhile, 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. The Congress-led United Progressive Alliance (UPA) coalition on Friday, 15 June 2012, named Finance Minister Pranab Mukherjee as its nominee for the post of president in the upcoming presidential poll. Mukherjee is expected to step down as the country's finance minister later this month. Prime Minister Manmohan Singh is widely expected to handle the finance portfolio himself. 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. Monsoon rains have reportedly covered half of India after having briefly stalled last week, bringing relief to farmlands and giving some reason to cheer to the country's embattled economy. The pickup in rains will erase concerns over the monsoon's impact on summer crops, as it had stalled for four to five days after reaching parts of Maharashtra. It will also bring some cheer to India's slowing economy because plentiful rains lead to better crop output, increasing farmers' income and driving up rural spending on goods. The sowing of summer crops such as rice, oilseeds, sugar cane and cotton begins with the arrival of the rains. The timing, distribution and quantity of the rains are vital to India's agricultural sector and economy, as more than 60% of the country's farmland is rain-fed. Monsoon rains in India were 36% below the 50-year average between June 1-17, according to the India Meteorological Department (IMD). About 81% of India's total area has received deficient or scant rains so far, with the remainder receiving normal or excess rain. The monsoon normally reaches the central regions by June 15 and covers the entire country by July 15. The IMD is scheduled to release its updated monsoon forecast for the current monsoon season season on 25 June 2012. Global rating agency Standard & Poor's early 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. Meanwhile, US Treasury Secretary Timothy Geithner has reportedly decided to postpone his India trip considering that his Indian counterpart, Pranab Mukherjee, is expected to resign as Finance Minister to file his nomination for presidential election. The Federal Open Market Committee began the first day of a two-day meeting on interest-rate policy on Tuesday. The meeting got under way with expectations increasing that the Fed is likely to extend its $400 billion Operation Twist program. The Fed launched Operation Twist in September 2011 to lower long-term borrowing costs. Operation Twist is officially scheduled to end on 30 June 2012. The Group of 20 advanced and developing economies, after a two-day summit, pushed European nations to integrate their banking systems quickly to calm the financial turbulence hitting Spain and threatening to ricochet around the world. A key summit of the European Union is scheduled on 28 and 29 June 2012 to discuss the ongoing European debt crisis. Tighter European banking supervision and measures to strengthen the monetary union are largely expected to be among top proposals at an EU summit. The Spanish government holds a critical bond auction on Thursday, 21 June 2012. At its bond auction Thursday, Spain will offer euro 1 billion to euro 2 billion of three bonds, maturing in 2014, 2015 and 2017. Several major emerging-market countries on Monday detailed their plans to lift the International Monetary Fund's bailout fund by more than euro 90 billion ($114 billion) to euro 456 billion to help contain the European sovereign-debt crisis. Asian stocks edged higher today as investors hope that major central banks may launch a new round of monetary stimulus to boost faltering global growth. Key benchmark indices in Singapore, Japan, Taiwan, South Korea, Hong Kong and Indonesia were up by 0.22% to 0.77%. China's Shanghai Composite shed 0.17%. The Federal Open Market Committee began the first day of a two-day meeting on interest-rate policy on Tuesday. The meeting got under way with expectations increasing that the Fed is likely to extend its $400 billion Operation Twist program. The Fed launched Operation Twist in September 2011 to lower long-term borrowing costs. Operation Twist is officially scheduled to end on 30 June 2012. US stocks advanced on Tuesday on hopes that the Federal Reserve will agree to extend stimulus measures to support growth in world's largest economy. The Dow Jones Industrial Average gained 95.51 points, or 0.75%, to 12,837.33. The Standard & Poor's 500 Index advanced 13.20 points, or 0.98%, to 1,357.98. The Nasdaq Composite Index rose 34.43 points, or 1.19%, to 2,929.76.