Manufacturing and services sector data for June 2012 in focus

Data on India's manufacturing and services sector for June 2012, the progress of the monsoon rains, further news from the European Union summit, if any, and Chinese economic data will dictate near term trend on the bourses. Auto and cement stocks will be in focus as companies from these two sectors start unveiling monthly sales volume data from Sunday, 1 July 2012. On the macro front, the manufacturing Managers' Index (PMI) for June 2012 will be out by 2 July 2012. The HSBC manufacturing Purchasing Managers' Index (PMI), compiled by Markit, slipped marginally to 54.8 in May from 54.9 in April. It has stayed above the 50 mark that separates growth from contraction for a little over three years now. The services purchasing managers' index for June 2012 is also expected to be out next week. The services sector grew at its fastest pace in three months during May. HSBC's services purchasing managers' index, compiled by Markit, rose almost two points to 54.7 in May from 52.8 in the previous month. The next major trigger for the stock market is Q1 June 2012 corporate earnings, which will start trickling from the second week of July 2012. A deceleration in top line growth of India Inc amid economic slowdown and slowdown in investment cycle will weigh on bottom line growth in Q1 June 2012 as the core operating profit margin could be negatively impacted by deceleration in top line growth. HDFC announces Q1 results on 11 July 2012. Infosys announces its Q1 results on 12 July 2012. HDFC Bank declares its Q1 results on 13 July 2012. Bajaj Auto reports Q1 results on 18 July 2012. Concerns on the monsoon front remain. The monsoon rains were 18% below average in the week to 27 June 2012. The rainfall was 23% below the long-term average in the current monsoon season till 27 June 2012. The delay and deficiency in monsoon rains are worrisome, as they coincide with the peak sowing period for summer crops. Weak rains have already hit sowing of summer-sown crops such as rice and soybeans, two of the country's most important staples. The timing, distribution and quantity of rainfall are all important for crops. Delayed and/or insufficient rainfall could hurt farm production and affect rural consumption. More than half of India's workforce is still employed in the farm sector. The India Meteorological Department (IMD) last week cut the expected quantum of total rainfall in the country for 2012. The IMD said monsoon rains in 2012 would be 96% of the long-term average overall, down from its April forecast of 99%. Rainfall in the northwestern grain bowl region is likely to be a slightly deficient at 93% of the long-term average this season. The weather office has forecast normal rains in July and August, key months for planting and maturing of crops. July rains this year are likely to be 98% of the long period average, while the rainfall in August is forecast to be 96% of the average. The two-day European Union summit aimed at resolving the euro-zone debt crisis ends on Friday, 29 June 2012. World stocks surged on Friday, 29 June 2012, after European Union leaders on Thursday, 28 June 2012, agreed in a closely watched summit meeting to measures aimed at stabilizing Spanish and Italian bond markets and took steps toward establishing a euro-zone-wide banking union. European leaders agreed to allow the region's permanent rescue fund, the European Stability Mechanism, or ESM, provide cash directly to Spanish banks once a regionwide financial supervisor is established. That would allow Spain's government not to take the cost of the bailout onto its books. Also, loans provided to Spain by the region's rescue funds won't carry senior status, potentially reassuring other creditors. Leaders also agreed to allow the rescue funds to buy distressed government bonds without requiring countries to sign on to strictly monitored bailout programs, opening the door for purchases of Italian bonds. Meanwhile, a batch of Chinese economic data due out over the next few weeks will cast new light on the scale of the ongoing economic slowdown in the world's second biggest economy. Kicking off the parade of data is an official manufacturing survey for June 2012 due on Sunday, 1 July 2012. Other figures due out later, over a five-day period from July 9 include second quarter gross domestic product, as well as such indicators as June fixed-asset investment, inflation, industrial production and bank lending.