Market may edge lower on weak Asian stocks; inflation data eyed

The market may edge lower tracking losses in Asian stocks triggered by China's measures to curb inflation. Closer home, the government will announce the wholesale price index data for the month of January 2010 today. The wholesale price index is expected to rise to 8.21% in January 2010 from a year earlier. Financial markets were closed on Friday 12 February 2010 for Mahashivratri holiday.

Asian stocks fell on Monday, 15 February 2010 for the first time in a week, led by commodity producers after BlueScope Steel swung to a loss and China bolstered steps to curb inflation. The key benchmark indices in Japan and Indonesia fell by between 0.41% to 0.42%. Most of the Asian markets were shut for Lunar New Year holidays.

Japan's economic growth accelerated last quarter as a global trade revival fueled demand for the nation's exports. Gross domestic product rose at an annual 4.6% pace in the three months ended 31 December 2010, the Cabinet Office said in Tokyo today.

China ordered banks on 12 February 2010 to set aside more deposits as reserves for the second time in a month, as loan growth quickened and property prices surged. The reserve requirement will increase 50 basis points effective 25 February 2010.

US stocks fell on Friday 12 February 2010 as a surprise move by China to restrict bank lending to cool its surging economy weighed on commodity prices and resource shares. The hike by China in bank reserve requirements is the second increase in as many months and raised worries about the impact of monetary tightening on global growth. Markets were also pressured by weaker-than-expected reads on US consumer sentiment and business inventories, and brushed aside a higher-than-forecast figure on January US retail sales, which rose 0.5%. The Dow Jones industrial average fell 45.05 points, or 0.45% to 10,099.14. The Nasdaq Composite index was marginally up. It added 6.12 points, or 0.28% to 2183.53.

Euro zone finance ministers will pile up pressure on Greece on Monday to fully implement planned budget deficit cuts so that the euro area would never have to deliver on its last week's pledge of support for Athens. European Union leaders issued a statement last week saying Greece had to do everything it could to reduce its budget gap of 12.7% of GDP to below the EU ceiling of 3 percent in 2012, including a 4 percentage point cut this year. But leaders also said the euro zone would take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole, sending a signal to markets that they would not let Greece default on its debt.

Closer home, fuel costs in India flared up in late January and food prices rose for a third straight week, threatening to push headline inflation into double-digits, and raising pressure on the Reserve Bank of India (RBI) to tighten monetary policy. Food prices rose 17.9% in the 12 months to 30 January 2010, higher than an annual rise of 17.6% in the previous week, the data released on Thursday 12 February 2010 showed. Fuel prices rose an annual 10.4% in the same week, sharply up from a rise of 5.88% on year the previous week.

The industrial output grew at its fastest pace in at least a decade in December 2009, in further evidence of a strong economic recovery that could allow the government to follow the Reserve Bank in withdrawing stimulus. Industrial output grew 16.8% in December from a year earlier, up from revised annual rise of 11.8% in November, data showed on Friday 12 February 2010. The RBI has already started to unwind stimulus, surprising markets by raising banks' cash reserve requirements by more than expected at its January policy review. It is widely expected to tighten rates at its April meeting.

Factory output, which grew for the 12th consecutive month, is riding on a revival in consumer demand following aggressive rate cuts by the central bank and stimulus via tax breaks put in place after the global downturn. Since December 2008, the government has announced stimulus packages equivalent to about 12% of GDP to boost infrastructure and support economic recovery, while the Reserve Bank of India cut its key lending rate by 425 basis points between October 2008 and April 2009.

Purchasing managers' index showed last week manufacturing activity in January grew at its fastest pace in almost 1-1/2 years, boosted by a sharp rise in new export orders, while car sales in January rose an annual 32.3%.

The government has been reluctant to commit any rollback in fiscal stimulus but with the economy increasingly looking on a solid footing, there are expectations that it would lay out a roadmap for a stimulus withdraw in its 26 February 2010 annual budget. Last week, the finance minister said India's economy would grow around 7.75% in the fiscal year ending March.

The economy is likely to grow more than 8% in the fiscal year 2010-11, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said on Friday 12 February 2010. The high industrial output figures show robust economic growth and the economy is likely to do well in the quarter through December, Finance Minister Pranab Mukherjee said on Friday.

Mukherjee will reportedly not present a major tax reform to bring down corporate tax and simplify income tax rules this month. The Direct Taxes Code bill was expected to be presented in the budget session of parliament beginning on 22 February 2010, with the aim of coming into effect from April next year. There are several complications in the Direct Taxes Code in its present form, and it required further scrutiny. Reports added that the government may delay the major tax reform bill to the next session of parliament, which starts in July.

In stock-specific news, Kuwaiti telecom group Zain has reportedly agreed to offload its African assets to Bharti Airtel, in a deal valued at $10.7 billion. The deal marks one of the biggest cross-border transactions in the Middle East in years.

The key benchmark surged on Thursday, 11 February 2010, as firm Asian stocks and gains in US index futures boosted sentiment. The government's decision to ease foreign investment rules also underpinned sentiment. The BSE 30-share Sensex rose 230.42 points or 1.45% to 16,152.59 on that day.

As per provisional figures on NSE, foreign funds bought shares worth Rs 211.90 crore and domestic funds bought shares worth Rs 60.82 crore on Thursday, 11 February 2010.