Market may extend recent gains on firm Asian stocks

The market may extend recent gains on firm Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 18 points at the opening bell. Asian shares were mostly higher on Tuesday ahead of monetary policy meetings by the European Central Bank and the U.S. Federal Reserve, with expectations for more stimulus steps to support fragile global economies. The Reserve Bank of India (RBI) is unlikely to cut its key policy rate viz. the repo rate at first quarter review of the Monetary Policy 2012-13 today, 31 July 2012, to guard against higher inflation as the country faces the possibility of a drought. The RBI unexpectedly left its key lending rate unchanged at its last meeting in June 2012, citing inflationary concerns. RBI has said that fiscal consolidation by the government is critical for interest rates to ease. Most economists polled by Capital Market expect a status quo on repo rate from RBI at today's monetary policy review. But, going ahead, RBI is seen cutting repo rate during the course of the financial year. Among corporate news, interest rate sensitive banking, auto and realty stocks will be in focus ahead of RBI's monetary policy review. Jaiprakash Associates and Cipla unveil Q1 results today, 31 July 2012. Shree Cement will be in focus as the Competition Commission of India on Monday, 30 July 2012, passed its final order in a restrictive trade practice inquiry against cement manufacturers and their trade association viz. Cement Manufacturers Association (CMA). The Commission in its order issued Monday found eleven cement manufacturers including Shree Cement and CMA in contravention of the provisions of the Competition Act, 2002 which deal with anti-competitive agreements including cartels. The Commission has also imposed a penalty of Rs 397.51 corers on Shree Cement at the rate of 0.5 times of its profits for the years 2009-10 and 2010-11. Key benchmark indices edged higher for the second straight day on Monday, 30 July 2012, with firm global stocks and data showing resumption of buying of Indian stocks by foreign institutional investors (FIIs) boosting sentiment. The BSE Sensex jumped 304.49 points or 1.81% to settle at 17,143.68 on that day, its highest closing level since 20 July 2012. Foreign institutional investors (FIIs) resumed buying of Indian stocks. FIIs bought shares worth Rs 928.95 crore on Monday, 30 July 2012 as per the provisional data from the stock exchanges. FIIs bought shares worth a net Rs 642.20 crore from the secondary equity markets on Friday, 27 July 2012, according to data released by Securities & Exchange Board of India (Sebi). FIIs had pressed sales recently after making sustained buying of Indian stocks Persistence of inflation, even as growth is slowing, has emerged as a major challenge for monetary policy, the Reserve Bank of India (RBI) said in a report released on Monday, 30 July 2012, titled Macroeconomic and Monetary Developments First Quarter Review 2012-13. Even as the growth outlook remains weak, inflation is likely to be sticky during 2012-13, RBI said. The near-term outlook on inflation continues to be marked by a number of upside risks, despite the significant slowdown in growth, RBI said. Risks to inflation remain from unsatisfactory monsoon and increases in MSP. While core inflationary pressures are currently muted, a continued rise in real wages may spill over to core inflation. Inflation expectations also remain sticky, RBI said. As per information available so far, the slowdown in economy has extended into Q1 June 2012 and output expansion in 2012-13 is likely to stay below its potential, RBI said. Newer risks to growth have arisen from slowing global trade, domestic supply constraints, bottlenecks of industrial inputs, particularly with regard to coal and electricity and less-than-satisfactory monsoon so far. Services sector growth is showing signs of deceleration in line with slowdown in industrial growth and weak global economy, RBI said. Corporate investment is expected to decline further during 2012-13, the report said. The fiscal deficit target for 2012-13 is at a risk of being breached due to likely overshooting of subsidies and shortfall in receipts, RBI said. Softening of global crude oil prices and moderation of gold imports may slightly lower current account deficit (CAD) in 2012-13, but risks remain, especially with slowing global growth and trade and low price elasticity of import demand, RBI said. With slower growth, sustainable level of CAD has come down to around 2.5% of GDP, RBI said. While the rate of deposit expansion at commercial banks is slow, credit growth has picked up in the current financial year in line with RBI's indicative projection made in April 2012. The flow of resources from non-bank sources has also been good, RBI said. Prime Minister Dr. Manmohan Singh has decided to refer the issue of implications on FIIs and portfolio investors of the amendment made to the Income Tax Act relating to the taxation of non-resident transfer of assets where the underlying asset is in India to the Expert Committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR). "It is necessary to have clarity on the tax liability of portfolio investors and foreign institutional investors as a result of this amendment particularly when the investment is made through a registered stock exchange in accordance with SEBI guidelines and purely in the form of portfolio investment", the Prime Minister's Office (PMO) said in a statement issued Monday, 30 July 2012. Any clarification needs to be harmonised with the GAAR guidelines and will have to address any residual concerns outside of GAAR, the PMO said. Dr. Singh early this month constituted an expert committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the guidelines for GAAR by 30 September 2012. Minister of State for Agriculture Harish Rawat on Monday, 30 July 2012, said rainfall in August, a critical month for summer crops, is likely to be 84%-85% of the long-term average, below the previous forecast of 96%. Commodities such as sugar and pulses have already started becoming costlier in anticipation of a fall in output and could complicate efforts by the authorities who have been struggling for more than two years to control inflation. Rainfall in the next five days will be critical for the crops and there's still a chance that the crop situation will improve if rains pick up, Mr. Rawat said. The monsoon has been slow and erratic so far this season. The monsoon rainfall was 21% below the long-term average as of Sunday, 29 July 2012. The rain has been deficient in northern and western parts of the country, threatening the output of summer crops such rice, pulses and sugar. A ministerial panel may soon review the drought-like situation in the country, Farm Minister Sharad Pawar said on Thursday, 26 July 2012, after a meeting with the country's food minister. The monsoon rains--which make up around 70% of India's annual rainfall--are crucial to the nation's agriculture sector and broader economy. More than 60% of the country's farmland is rain-fed. The timing, distribution and quantity of rainfall are all important for crops. The four-month southwest monsoon season that starts from June accounts for almost 70% of total annual moisture that Indian soil receives in a year. Rainfall has intensified in Madhya Pradesh, the country's largest oilseed-growing region, improving prospects for the soybean crop. The rainfall is likely to intensify over parts of Madhya Pradesh, Gujarat and Rajasthan in the next three days, state-run India Meteorological Department said on Monday, 30 July 2012. Sowing of summer crops has picked up pace during the past few days. According to data released by the Ministry of Agriculture, rice was sown in 191.06 lakh hectares (lh) till Friday, 27 July 2012, sharply higher than 144.59 lh a week back. It, however, remains lower than 199.77 lh of normal area for this time of the year. Cumulative sowing of coarse cereals totaled 117.48 lh as on 27 July 2012, compared with 95.43 lh a week back. It, however, remains much lower than 160.86 lh of normal area for this time of the year. Sowing of pulses totaled 62.99 lh as on 27 July 2012, sharply higher than 40.19 lh a week back. It, however, remains lower than 79.82 lh of normal area for this time of the year. Sowing of oilseeds totaled 138.33 lh as on 27 July 2012, compared with 108.84 lh a week back. The normal oilseeds sowing area of 134.45 lh by this time of the year has already been surpassed. Sowing of cotton totaled 97.24 lh as on 27 July 2012, compared with 83.74 lh as on 20 July 2012. The normal cotton sowing area of 94.02 lh by this time of the year has already been surpassed. Sowing of jute and mesta totaled 8.29 lh as on 27 July 2012, exceeding the normal area of 8.22 lk for the crop by this time of the year. The central government has prepared extensive plans to deal with the deficiency in the monsoon/rainfall in some parts of the country, the Prime Minister's Office (PMO) said last week. A proposal for increase in subsidy for supply of pulses through Public Distribution System to BPL families is being brought before Cabinet Committee on Economic Affairs by the Ministry of Consumer Affairs, Food and Public Distribution, it said. The government will increase the availability of electricity and diesel to the grain-bowl northern region to help farmers draw ground water so that the yield of rice isn't affected, it added. It also said there is a proposal to increase the subsidy for the supply of pulses through the government's welfare program to poor families. The IMD last month predicted that rainfall this monsoon would likely be 96% of the 50-year average, with an error margin of 4%. The Prime Minister's Office said actual rainfall could be at the lower end of that range, which means around 92% of the 50-year average. Principal adviser to the Planning Commission Pronab Sen last week said rate cuts weren't the remedy for India's growth slowdown. Slowing investment due to weak confidence in the economy, and not a shortage of credit, is hurting growth, he said. Mr. Sen said Indian companies aren't facing any shortage of funds. Many of them are sitting on piles of cash and aren't even repatriating overseas borrowings, he added. The government should take steps to meet the fiscal deficit target set out in the budget and that would improve sentiment and revive investments, Mr. Sen said. He said the government should scale back its spending and slash subsidies on fuels, food and fertilizers to help check its budget deficit. Mr. Sen said food prices would rise if rains don't improve in two weeks. Slowing growth in investment remains a cause for concern for India. Investment makes up 35% of India's economic activity. The manufacturing Managers' Index (PMI) for July 2012 will be out Wednesday, 1 August 2012. The HSBC manufacturing Purchasing Managers' Index (PMI) rose to 55 in June, a four-month high, from 54.8 in May. It has kept above the 50 mark that divides growth and contraction for more than three years. The services purchasing managers' index for July 2012 is expected to be released in early August 2012. HSBC's services purchasing managers' index, which gauges the activity of around 400 firms in India, dropped to 54.3 in June from 54.7 in May. However, it has kept above the 50 mark that signifies growth since November. An India-Mauritius joint panel will discuss a series of proposals to review the double taxation avoidance treaty between the two nations on 22-24 August in Mauritius. India has been looking to negotiate the double taxation avoidance agreement with Mauritius for the past few years to check so-called round tripping and other potential abuses. Round tripping entails moving money out of one country to another, and getting it back under the garb of foreign capital. Capital gains tax is close to zero in Mauritius and almost 40% of investments into India come through the island nation. Under the bilateral agreement, capital gains from sale of securities can be taxed only in Mauritius. The India-Mauritius joint working group will also discuss the inclusion of a so-called limitation of benefit clause, similar to the Singapore tax treaty with India, to ensure only genuine Mauritius-based companies are benefited. India's tax agreement with Singapore says that only those companies that spend a minimum of $200,000 (about Rs 1 crore) in Singapore can avail the benefits of the treaty. Sanctity of tax residency certificates issued by a country to companies operating in its jurisdiction to enable the firms to claim tax benefits under various treaties is another issue between India and Mauritius. While India in this year's national budget said the certificates are a necessary but not sufficient condition, Mauritius wants those issued by it honoured. Draft guidelines issued by Indian government for implementing the controversial anti-avoidance tax proposal viz. the GAAR state that GAAR provisions should be invoked on a foreign institutional investor (FII), if it chooses to take a treaty benefit, but would not in any case be invoked in the case of the non-resident investors of the FII. The draft guidelines suggested that the onus of proving wrongdoing should be on the authorities. With presidential poll over, the focus now shifts to the Vice-President's poll, which is due on August 7 -- a day before the monsoon session of parliament kicks off. Prime Minister Dr. Manmohan Singh said in a newspaper interview this month that he has identified controlling the fiscal deficit, achieving clarity on tax matters, reviving the mutual funds and insurance industries, clearing a backlog of foreign investment proposals and boosting infrastructure as his focus areas in the short term. Singh said there will be no arbitrariness in tax matters. The statement assumes significance in the context of a raging controversy over the Income Tax amendment to re-open tax demands with retrospective effect from companies like Vodafone over acquisition of companies having operations in India but registered abroad to avoid taxes. Singh last month said he is chalking out plan for the country's economic revival. Singh last month took additional charge at the finance ministry after Pranab Mukherjee resigned as finance minister on 26 June 2012 to contest the presidential polls. The monsoon session of the parliament will begin on 8 August 2012 and the session will conclude on 7 September 2012, Parliamentary Affairs Minister Pawan Kumar Bansal said on Wednesday, 18 July 2012. The government hasn't yet finalized the agenda for the session, but the expectation is that Prime Minister Dr. Manmohan Singh -- who took charge of the finance ministry after Mr. Pranab Mukherjee resigned to contest the presidential elections -- will try and push through long-pending legislations. These could include the Direct Tax Code and the insurance, pension and banking bills. The government would also place before lawmakers the first demand for additional spending for this fiscal year which began April 1. Corporate affairs minister Veerappa Moily said in a newspaper interview published on 11 July 2012 that the government is hopeful of the passage of the pension bill in the monsoon session of parliament. Investors' focus is currently on Q1 June 2012 earnings. DLF and Steel Authority of India unveil Q1 results on 6 August 2012. Mahindra & Mahindra and Bharti Airtel unveil Q1 results on 8 August 2012. Tata Motors and Ranbaxy Laboratories unveil quarterly results on 9 August 2012. Sun Pharmaceuticals Industries, Siemens and BPCL announce quarterly results on 10 August 2012. ONGC announces Q1 results on 11 August 2012. Coal India announces Q1 results on 13 August 2012. Hindalco Industries and IDFC will unveil Q1 results on 14 August 2012. Asian stocks rose on Tuesday on speculation the Federal Reserve and the European Central Bank may signal their readiness to stimulate growth amid signs of a global economic slowdown, boosting the earnings outlook for exporters. Key benchmark indices in Indonesia, South Korea, Japan, Hong Kong, and Taiwan rose by between 0.31% to 1.37%. Key benchmark indices in Singapore and China fell by between 0.2% to 0.29%. Taiwan's economy unexpectedly contracted in the second quarter amid a faltering global recovery, prompting the government to cut its growth forecast. Gross domestic product fell 0.16% in the three months through June from a year earlier after expanding 0.39% in the previous quarter, according to preliminary data released by the statistics bureau in Taipei today. On Monday, the European Commission's sentiment index showed the euro zone's business sentiment fell to a 34-month low in July, near levels last seen after the collapse of Lehman Brothers. The Governing Council of the European Central Bank (ECB) holds a monthly monetary policy review on interest rates for the euro area on Thursday, 2 August 2012. Comments from ECB President Mario Draghi last week have fueled expectations that the institution will take bold action to bring down borrowing costs for Spain, which had moved well into crisis territory last week, and Italy, which faces uncomfortably high bond yields. The Monetary Policy Committee of Bank of England holds a monthly policy meeting on interest rates in the United Kingdom (UK) on the same day. Germany's Federal Constitutional Court will announce a decision on lawsuits challenging the country's participation in the permanent euro-zone rescue fund, the European Stability Mechanism, and the fiscal pact on 12 September 2012. The court held a public hearing earlier this month to examine complaints that participation in the fund and the fiscal pact violated German law by taking some authority over the national budget away from parliament. U.S. stocks finished mostly flat on Monday as investors paused following the best two-day run this year. Key US economic data due this week include indicators on consumer spending, personal income, consumer confidence and the S&P/Case-Shiller home prices index on Tuesday, 31 July 2012. The Federal Open Market Committee (FOMC) holds a two-day policy meeting on US interest rates on 31 July and 1 August 2012. It remains to be seen if the FOMC announces or at least gives indication of another round of asset purchases, known as quantitative easing, to give the US stalling economy a jolt. US gross domestic product which is the value of all goods and services produced in the country, rose at a sluggish 1.5% clip in Q2 June 2012 as consumers pared spending and businesses invested at a slower pace, the Commerce Department reported on Friday, 27 July 2012. A report from Automatic Data Processing, Inc. (ADP) on private-sector employment in the United States in July 2012 is due on Wednesday, 1 August 2012. On the same day, a manufacturing survey for July 2012 from the Institute for Supply Management is also due for release. Data on weekly jobless claims in the US and data on factory orders are due for release on Thursday, 2 August 2012. On the same day, US retailers will unveil monthly same-store sales data. The influential US government data on non-farm payroll for July 2012 is due on Friday, 3 August 2012. In June, the United States created 80,000 jobs, the third straight month of job growth of under 100,000.