Market seen opening flat-to-positive; Infosys, RIL eyed

Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 5.50 points at the opening bell. Market will react to cut in ratings outlook on India's sovereign debt rating to negative from stable by Fitch Ratings announced after market hours on Monday. Most Asian markets were trading lower on Tuesday amid worries over the worsening euro zone debt crisis. State-run Coal India (CIL) has reportedly entered into fuel supply agreement (FSA) with 27 power units. The signings come even as the Prime Minister's Office (PMO) is slated to convene a meeting on Friday to iron out issues in the pact, mainly the penalty clause. The government had issued a presidential directive to CIL in April to sign FSAs with the power producers assuring them of at least 80% of the committed coal delivery. The directive was given to CIL, as it did not meet the deadline of March 31 set by PMO for CIL to enter into agreements with power producers which were facing fuel crunch. Reports indicated that Infosys may be forced to pare its already low growth guidance due to the wild swings of global currencies, including pound sterling, Australian dollar and euro, against the US dollar. Rating firm Fitch on Monday lowered the rating outlook of seven public sector companies including NTPC, Sail, GAIL (India), Indian Oil Corporation, REC, Power Finance Corporation of India and NHPC. However, Fitch said there is no immediate impact on Reliance Industries' Issuer Default Ratings (IDRs) following India's credit outlook revision. Key benchmark indices tumbled on Monday, 18 June 2012, as the market sentiment was hit adversely after the Reserve Bank of India (RBI) kept its key 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 BSE Sensex lost 244 points or 1.44% to settle at 16,705.83, its lowest closing level since 14 June 2012. Foreign institutional investors (FIIs) bought shares worth a net Rs 412.41 crore on Monday, 18 June 2012, as per provisional figures. 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. Meanwhile, setting the tone for the crucial G-20 Summit, Prime Minister Manmohan Singh on Monday said the world economy is in "deep trouble" and hoped the grouping of developed and developing countries will come up with constructive proposals to pull the world out of this crisis. 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. 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. 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. 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. Meanwhile, investors are awaiting the results of an independent audit of Spanish banks which is due on Thursday, 21 June 2012. The independent assessment was a key condition for the 100 billion euro financial package agreed this month to shore up the battered Spanish lenders, weighed down by soured real estate assets and a plummeting property market. 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. Most Asian markets declined on Tuesday as rising Spanish and Italian bond yields suggested that European leaders still have plenty to do to contain the worsening euro zone debt crisis. Key benchmark indices in Japan, China, Taiwan, South Korea and Hong Kong were down by 0.17% to 0.37%. Key benchmark indices in Indonesia and Singapore rose 0.40% and 0.20% respectively. US markets were mixed on Monday amid fears over worsening Europe's debt crisis. The Dow Jones Industrial Average fell 25.28 points, or 0.20%, at 12,741.89. The Standard & Poor's 500 index rose 1.94 points, or 0.14%, at 1,344.78. The Nasdaq Composite index rose 22.53 points, or 0.78%, at 2,895.33.