Market may edge lower on weak Asian stocks; Railway budget eyed

The market may edge lower tracking weak Asian stocks after the data showed a drop in U.S. consumer confidence to a 10-month low. The investors will keenly watch the Railway Budget to be presented by the Railway minister Mamata Banerjee today. The investors may remain cautious ahead of the Union Budget 2010-11 which will be tabled in the parliament on 26 February 2010. Derivatives expiry on Thursday, 25 February 2010 is also likely to add volatility on the bourses. The Economic Survey will be tabled in the parliament on 25 February 2010.

As far as railway budget is concerned, the Railway minister Mamata Banerjee is likely to present a populist budget leaving passenger fares untouched, but rationalise the freight rates of certain commodities like iron ore, coal and cement. Banerjee is unlikely to tinker with the freight rates of essential commodities including food grains.

Stocks related to the rail business, Container Corporation of India, Kernex Microsystems, Stone India, Kalindee Rail Nirman, Titagarh Wagons, Texmaco, Gateway Distriparks and Simplex Casting may see action.

As far the Union Budget 2010-2011 is concerned, the government may announce increase in excise duties as a first step towards a gradual winding down of fiscal stimulus measures. It may also raise the service tax rate to 12% from 10%. It may be recalled that the government had slashed the Central Value Added Tax (Cenvat) rate for excise duty from 14% to 8% in two rounds starting in December 2008. It had also cut service tax by 2 percentage points. These reductions were effected in order to provide a stimulus to domestic industry. Since the overall prospects for growth are much brighter today, the finance minister may withdraw a part of the stimulus in order to boost tax revenue.

The Finance Minster may project a lower fiscal deficit for 2010-11 based on higher revenue projections due to economic rebound. It remains to be seen if there are structural reforms to reduce the subsidy burden such as decontrol of petrol and diesel prices as recommended by the Kirit Parikh committee recently.

The fate of three important fiscal bills, which had been stalled by the Left parties, will be closely watched. These are the Pension Fund Regulatory and Development Authority (PFRDA) Bill, Insurance Bill and Banking Regulation (Amendment) Bill.

Meanwhile, the recommendations of the 13th Finance Commission will be tabled in the parliament on 25 February 2010, just a day ahead of the budget. Analysts and economists expect the Finance Minister to provide a road map for the introduction of the key direct and indirect tax reforms viz. the direct tax code (DTC) and the Goods & Services Tax (GST) in the Budget. As far as government expenditure is concerned, the thrust areas could be agriculture, water resources, power, roads & other infrastructure projects and social sector schemes.

The government should begin to lower its fiscal deficit in the budget set to be announced this week but should not cut capital spending on infrastructure, the prime minister's economic advisory council said in a report released on Friday 19 February 2010. The panel also projected economic growth of at least 8.2% in 2010/11, from over 7.2% forecast for the current fiscal year. The fiscal deficit, running at a 16-year high of 6.8% of GDP this year, threatens to push up long-term market interest rates and constrain the setting of monetary policy, the prime minister's economic advisory council said. The panel also warned about the spread of food price inflation to the broader economy.

The follow-on public offer of Rural Electrification Corporation (REC) was subscribed 3.14 times on the last day of bidding on 23 February 2010, NSE data showed. The government has set the floor price of the follow-on public offer of Rural Electrification Corporation (REC) at Rs 203 per share. The issue, offered sale of 12.87 crore equity shares and an offer for sale of 4.29 crore government owned shares.

The finance minister Pranab Mukherjee said on Tuesday the government will continue measures to tame inflation in the financial year ending March 2011. The government will unveil data on some wholesale price indices for the year through 13 February 2010 viz. the food price index, the primary articles index and the fuel price index on Thursday 25 February 2010 .

Asian stocks declined for the first time in three days on Wednesday, led by materials companies and carmakers, after a drop in U.S. consumer confidence to a 10-month low spurred concern that the economic recovery will slow. The key benchmark indices in Hong Kong, Japan, Indonesia, South Korea, Singapore and Taiwan fell by between 0.52% to 1.82%. But China's Shanghai Composite rose 0.18%.

Japan's exports climbed at the fastest pace in almost 30 years in January 2010, supporting the nation's economic recovery as falling wages damp demand at home. Shipments abroad advanced 40.9 % from a year earlier, the biggest increase since February 1980, the Finance Ministry said today in Tokyo.

US markets, closed near session lows in their worst single-session percentage loss in more than two weeks on Tuesday on disappointing consumer confidence reading. The February consumer confidence index came in below expectations at a 10-month low of 46. The dollar's strength also weighed on sentiment.

Dow Jones lost 100.97 points or 0.97% to 10282.41. NASDAQ fell 28.59 points or 1.28% to 2213.44 and the S&P 500 index slipped 13.41 points or 1.21% to 1094.60.

The Ifo institute in Munich said its survey of German business confidence unexpectedly fell for the first time in 11 months in February as the coldest winter in 14 years damped retail sales and construction.

Closer home, the key benchmark indices registered marginal gains after moving in a tight range throughout the day on Tuesday, 23 February 2010. The market gained for the second straight day. The BSE 30-share Sensex rose 49.27 points or 0.3% to 16,286.32 on that day.

As per provisional figures on NSE, foreign funds bought shares worth Rs 550.69 crore and domestic funds sold shares worth Rs 179.74 crore on Tuesday.