Industrial production data may set direction

The market will take cues from June 2008 industrial production figures which the government will release on Tuesday, 12 August 2008. Falling crude oil prices and improvement in south west monsoon will provide some relief to investors. Rising inflation remains a major worry for the markets in the medium term.

The government will release June 2008 industrial production data at 12:00 IST on 12 August 2008. Reserve Bank of India’s recipe to contain inflation by increasing the lending rates is expected to hurt industry, manufacturing sector and the overall growth momentum. Industrial production grew at the slowest pace in more than six years in May 2008, at 3.8%, as against 10.6% in the same month of 2007, with manufacturing showing signs of acute deceleration.

Inflation remains a major concern for the central bank. Inflation based on the wholesale price index rose 12.01% in 12 months to 26 July 2008, slightly above the previous week's annual rise of 11.98%, government data released on 7 August 2008 showed.

Reserve Bank of India (RBI) on 29 July 2008, raised repo rate by 50 basis points to a seven-year high of 9% to curb inflation and dampen inflationary expectations. RBI also raised the cash reserve ratio (CRR), the proportion of funds that banks must keep on deposit with it, by 25 basis points to 9%. The central bank left its reverse repo and bank rates unchanged. Responding to the RBI's monetary tightening, top lenders HDFC and ICICI Bank and a number of state run bank have raised interest rates.

The aggregate results of 2,988 companies showed 5.1% rise in net profit to Rs 63,752 crore on 37% rise in sales to Rs 7,64,023 crore in Q1 June 2008 over Q1 June 2007. The net profit growth is now in single digits the lowest in the past 20 quarters. In the June 2008 quarter, a number of companies were hit by mark-to-market (MTM) losses on their foreign exchange (forex) exposure.

Crude oil prices have declined sharply from record high $147.27 a barrel hit on 11 July 2008. Oil held near $118 a barrel on Friday 8 August 2008. India imports 70% of its crude requirement. The rising crude oil prices affects the fiscal deficit position of the country and its sovereign rating.

India's monsoon, was above average for the first week in August 2008, helping ease a dry spell that had threatened to delay sowing of crops including rice and cotton. Farmers in India, the world's second-largest rice producer, rely on the timing of the monsoon to decide which crops to grow. Showers in July 2008, the wettest month in the June-September season, were 18% below average, undermining prospects for record grain output critical to lowering food inflation.

Marketmen will keenly watch the development of India’s nuclear deal with US. The Board of Governor of the International Atomic Energy Agency (IAEA) on 1 August 2008 unanimously adopted the India-specific safeguards agreement, a key step in operationalisation of the Indo-US nuclear deal.

With the go-ahead from IAEA, India will now seek a waiver from 45 nuclear supplier nations allowing trade with a non-NPT (Non-Proliferation Treaty) country and then ratification from the US Congress, to finalise the deal. Most big powers have backed the deal.

Foreign institutional investors (FII)’s bought shares worth Rs 1,527.90 in the first few days of August 2008 (till 7 August 2008). FIIs sold shares worth Rs 25,774.20 in the calendar year 2008, till 7 August 2008. Mutual funds sold shares worth Rs 286.10 in the month of August 2008 (till 7 August 2008).