Market may extend gains on firm Asian stocks

The market may extend Monday's (2 August 2010) gains on firm Asian stocks. Strong sales reported by auto firms for July 2010 will keep sentiment firm. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicated that the Nifty could gain 14 points at the opening bell.



Copper and aluminium major Hindalco Industries announces Q1 result today. Meanwhile, the Lok Sabha on Monday approved a bill that will allow the State Bank of India (SBI) to reduce government holding in the bank to 51% from 55% and raise funds from the capital markets.

Stocks across Asia climbed early Tuesday, 3 August 2010, after Wall Street opened August with a strong rally on positive indicators from around the globe. The key benchmark indices in Hong Kong, Singapore, Japan, Indonesia, Taiwan and South Korea were up by between 0.08% to 0.63%. But, China's Shanghai Composite fell 0.12%.

US stocks closed at their highest level in 10 weeks on Monday, 2 August 2010, as a weaker US dollar lifted the energy and raw materials sectors. The Dow Jones Industrial Average gained 208.44 points, or 1.99% to 10,674.38. The Standard & Poor's 500 Index advanced 24.26 points, or 2.20% to 1,125.86. The Nasdaq Composite Index rose 40.66 points, or 1.80% to 2,295.36.

Further boosting stocks, the Institute for Supply Management said the US manufacturing sector grew at a faster rate than expected in July. The government reported construction spending unexpectedly rose in June.

Back home, the Indian government moved a step closer to creating a permanent mechanism to resolve disputes among regulators as the Lok Sabha on Monday passed the bill moved to replace the ordinance issued to end the spat between Insurance Regulatory and Development Authority (Irda) and Sebi over regulation of unit linked plans, or Ulips. Members from the BJP and the Left parties accused the government of trying to create a 'super regulator' through the legislation.

The bill was passed with a voice vote after finance minister Pranab Mukherjee assured the House that the government will not dilute the autonomy of the regulators and won't be a 'super regulator'. Pointing that the RBI has two functions --monetary and regulatory -- the minister said, it no way, the government is interfering with the monetary authority. The RBI is the supreme (as far as monetary matters are concerned). Justifying the bill, he said the government has to interfere if there is contradiction between the regulators and the overall interests of the economy suffers.

The Securities and Insurance Laws (Amendment and Validation) Bill, 2010, replaces an ordinance issued last month to end the turf war between market regulator Sebi and insurance watchdog Insurance Regulatory and Development Authority (Irda) over the jurisdiction of Ulips.

India's exports rose for the eighth straight month in June, growing an annual 30% to $17.75 billion, government data on Monday showed.

The manufacturing expansion picked up pace in July 2010, driven by new orders, stronger factory output and rising prices even as hiring stagnated, a survey showed on Monday, 2 August 2010. The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, edged up to 57.6 in July 2010 from 57.3 in June 2010 when it slipped from a multi-year high.

The factory output index jumped to a four-month high of 62.3 in July from 60.5 in the prior month, pointing to a rate of expansion in production that was above the trend since the end of the financial crisis, according to survey compilers Markit. But Indian manufacturers shed jobs for the first time in four months in July.

Coming back to stocks, foreign funds continue to mop up Indian stocks. Foreign funds have bought shares worth a net Rs 8320.50 crore in July 2010 absorbing selling by domestic institutional investors. Domestic funds have sold shares worth a net Rs 6323.13 crore in July month, as per data from the stock exchanges.

Foreign funds had pumped in Rs 7713.97 crore in equities in June 2010, absorbing selling by domestic funds in that month. Domestic funds had dumped shares worth a net Rs 4777.05 crore in June 2010.

As per provisional figures on NSE, foreign funds bought shares worth Rs 728.14 crore and domestic funds sold shares worth Rs 172.80 crore on Monday, 2 August 2010.

Asia ex-Japan equity funds absorbed more than $1 billion in the week ended 28 July 2010, their biggest inflow in 14 weeks, according to data from global fund tracking firm EPFR Global. Indian equity funds posted an eighth consecutive week of inflows and China stock funds recorded the biggest weekly intake since mid-April, EPFR said.

On the corporate front, the combined net profit of a total of 1,701 companies fell 10% to Rs 55358 crore on 20.9% rise in sales to Rs 684145 crore in Q1 June 2010 over Q1 June 2009.

The revival of monsoon rains in the crucial sowing month of July 2010 augurs well for the Indian economy which is driven by strong domestic demand. The annual monsoon rains were 38% above normal in the week to 28 July 2010, bouncing back from a 17-percent deficit in the previous week, the weather office said on Thursday, 29 July 2010. The cumulative rainfall during the period from 1 June 2010 to 2 August 2010 was 3% below normal.

The southwest monsoon was vigorous over West Rajasthan and Saurashtra & Kutch and active over Gujarat region and Madhya Pradesh during past 24 hours, India Meteorological Department (IMD) said in its daily update on Monday, 2 August 2010. The IMD expects fairly widespread rainfall over plains of northwest India and north Peninsula and adjoining central India over the next few days

Rainfall over the country as a whole for the second half (August to September) of the 2010 southwest monsoon season is likely to be normal, the IMD said late last week. Quantitatively, rainfall for the country as a whole during the period August-September 2010 is likely to be 107% of long period average (LPA) with a model error of plus/minus 7%, it said.

The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The weather office expects this year's monsoon rains to be at 102% of the long-period average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

Water level in main reservoirs was at 27% of capacity in the week to 29 July 2010, up from 19% in the previous week. Reservoirs are important for hydropower, which accounts for a quarter of the nation's generation capacity. They also provide water to irrigate winter crops such as wheat and rapeseed.

The Reserve Bank of India (RBI) at its Q1 monetary policy on Tuesday, 27 July 2010, raised its key short term interest rates for the fourth time this year to curb surging inflation. The central bank also raised its economic growth and inflation forecasts.

The RBI raised GDP forecast to 8.5% for the year ending March 2011 (FY 2011), from 8% with an upside bias earlier. The central bank said the upward revision in growth forecast is primarily based on better industrial production and its favourable impact on the services sector and also giving due consideration to the global scenario.

The RBI also signaled its strong preference for tight liquidity, saying it would ensure that excess liquidity in the system doesn't dilute the effectiveness of policy-rate actions.

The RBI also raised the baseline projection for inflation based on wholesale price index for March 2011 to 6% from 5.5% indicated in the April 2010 policy statement, taking into account the emerging domestic and external scenario. The RBI said its outlook on inflation will partly be shaped by the distribution of monsoon rains and their impact, as the agricultural harvest will be crucial to easing currently high food prices in the country.

The Reserve Bank of India said the economy could face a significant risk in the form of a slowdown in capital flows, at a time when the current account deficit is widening. In its first quarterly review of monetary policy, the Reserve Bank of India said that a potential slowdown in capital inflows could impact the current and trade deficit. The current deficit is already widening as imports continue to rise with the rebound in economic growth.

RBI has said that the risk of capital flows runs both ways. Given the present state of the global economy, central banks in advanced economies are likely to maintain accommodative monetary policies for an extended period. With the strong growth potential of emerging market economies, including India, this is likely to trigger large capital inflows. Large capital inflows above the absorptive capacity of the economy will pose a challenge for monetary and exchange rate management. This also has implications for asset prices. In this scenario, a widening current account deficit will help absorb a larger proportion of the inflows.

The key benchmark indices jumped on Monday, 2 August 2010 boosted by strong auto sales in July 2010 and after data showed manufacturing activity picked up pace in the month just gone by. Revival of the monsoon rains in the crucial sowing month of July, sustained buying by foreign funds, and firm global equities, also underpinned sentiments. The BSE 30-share Sensex rose 212.92 points or 1.19% to 18,081.21 on Monda