Market may extend gains on higher Asian stocks

The market may extend Tuesday's (22 December 2009)'s gains tracking higher Asian stocks. Higher advance tax payment by India Inc may further support market. US stocks ended higher on Tuesday on better monthly home sales data.

Corporate advance tax payments for the October-December 2009 quarter shot up sharply, suggesting a higher profit growth in corporate sector in the third quarter (October-December) of the current fiscal, pointing to a firm broad-based economic recovery. Corporate advance tax payments for the quarter were up 44% to Rs 48,300 crore against a 3.7% decline in April-June quarter and a 14.7% increase in July-September quarter. The company-wise break-up of advance tax collection suggests a broad-based recovery with automobiles, cement, metals and consumer goods, doing well.

The sharp surge in food prices reflects the impact of the drought and inefficient distribution, which could not be addressed by monetary policy, the deputy head of India's Planning Commission Montek Singh Ahluwalia said on Tuesday. While the increase in food prices was to some extent expected, it was a concern -- food prices rose an annual 20 % in early December -- but they should decline in January 2010, Ahluwalia said.

Ahluwalia said food prices are likely to decline from January 2010. He attributed the surge in food prices due to speculation. The stock situation is relatively OK, Ahluwalia aid. Price increase at the retail level is much more than the increase at the wholesale level. This is because of dysfunctionality in the distribution system, Ahluwalia said.

India's food-price inflation cannot be tackled through monetary and other policy steps, while inflationary expectations will not stay long, Finance Secreatary Ashok Chawla said on Monday. Earlier on Monday, the Prime Minister's economic advisor C Rangarajan said India's central bank may have to raise the cash reserve ratio (CRR) to drain money from the banking system if prices do not decline in December.

India's central bank governor D Subbarao had earlier said that monetary policy is not the right tool to fix supply problems such as food shortages, but added that if not contained soaring food prices would stoke inflationary pressures in the broader economy.

Food prices surged an annual 20% in early December and rising food prices contributed to a faster-than-expected 4.78% increase in the wholesale price index in November 2009. Finance Minister Pranab Mukherjee, last week, said containing inflation is high on the government's agenda and it is monitoring the price situation.

In overseas news, Moody's Investors Service cut Greece's debt rating on Tuesday but partially reassured financial markets by saying the country remained far from a crisis. Moody's downgraded Greece to A2 from A1, citing the country's swelling budget deficit. It was Greece's third downgrade by a major credit rating agency this month; Fitch took action early this month, followed by Standard & Poor's.

Asian shares edged higher on Wednesday tracking overnight gains in US stocks after better existing monthly home sales data in the US. The key benchmark indices in China, Japan, South Korea, Singapore and Taiwan rose by between 0.05% to 1.91%. But the key benchmark indices in Indonesia and Hong Kong fell by between 0.05% to 0.37%.

Broad-based buying sent the S&P 500 to fresh 52-week highs despite a surprise downward revision to third quarter GDP and a gain by the greenback. Better-than-expected existing home sales report supported sentiment. The Dow Jones Industrial Average added 50.79 points, or 0.5%, to 10,464.93. The Standard & Poor's 500 index rose 3.97 points, or 0.4%, to 1,118.02, while the Nasdaq Composite Index was up 15.01 points, or 0.7%, to 2,252.67.

The market mood was tempered by news that third quarter GDP was determined to have increased at a slower-than-expected annualized rate of 2.2%, lower than consensus prediction.

The housing data provided some relief. It showed that existing home sales climbed at a stronger-than-expected jump of 7.4% to 6.54 million units in November 2009. That lifted the annualized rate to 6.54 million units.

US Treasury Secretary Timothy Geithner expressed confidence on Tuesday that the US economy was on a solid recovery path, but said tight lending practices by banks still pose a risk.

Closer home, the key benchmark indices edged higher on bargain hunting on Tuesday, 22 December 2009 as global stocks rose. Higher advance tax payment by India Inc also underpinned sentiment. The BSE Sensex rose 90.80 points or 0.55% to 16692 on that day.

As per provisional figures on NSE, foreign funds sold shares worth Rs 110.06 crore and domestic funds bought shares worth Rs 510.59 crore on Tuesday.