Market may edge lower on weak Asian stocks

The market may snap last two days' strong gains on weak Asian stocks. Trading of the S&P CNX Nifty futures on the Singapore stock exchange indicate that the Nifty could fall 16.50 points at the opening bell.



Asian stocks fell on Wednesday, with Japan's big exporters among the heaviest losers as a rise in the yen to a new 15-year high threatens to erode their overseas earnings. Japan's Nikkei Average fell 1.97%. The key benchmark indices in Hong Kong, South Korea, Taiwan, China and Singapore were down by between 0.32% to 1.29%.

Worries about Europe's banks resurfaced on Tuesday after a Wall Street Journal analysis revealed that Europe's recent stress tests of the strength of major banks understated some lenders' holdings of potentially risky government debt.

US stocks fell in light volume on Tuesday as investors seized on renewed concerns about European banks as a reason to sell shares after strong gains last week.

Closer home, good rains in August 2010 and in the first week of September 2010 has strengthened the optimism about a record kharif harvest this season. Further, the weather office's prediction that the monsoon will not start withdrawing before mid-September 2010 has boosted the outlook for the next rabi as well.

The kharif sowing is more or less over in most of the country, barring some pockets in the east where soil moisture remained inadequate for seeding till the second half of August 2010. Paddy growers in such tracts of Jharkhand, West Bengal and Bihar are now sowing alternative crops like urad, moong, nigerseed and fodder on the advice of agriculture experts and officials of the state agriculture departments, as per media reports.

With 16% above-normal rainfall in the last week of August, the overall deficiency in the season's cumulative monsoon rainfall till 4 September 2010 has shrunk to just 1%, from 5% at July-end and 16% at June-end. The forecast issued by the India Meteorological Department (IMD) projects 15% excess rainfall in September 2010, the last month of the four-month monsoon season (June to September). The rain-starved tract in the north-east is also projected to receive good rainfall till at least 10 September 2010. The cumulative seasonal rainfall in the eastern region as a whole, however, may remain in the deficient domain, according to IMD.

While the traditional high rainfall region in the east and north-east has remained rain deficient in this monsoon this, the usually arid tracts, such as western Rajasthan, Leh and Ladakh in Jammu and Kashmir, Vidarbha, Marathwada, Saurashtra and Kutch, have got excess rainfall in the current monsoon season. This has facilitated extensive sowing of coarse cereals, pulses and cotton in these tracts, as per media reports. High ruling prices of these commodities has also encouraged the farmers to go for these crops.

The good and sustained waterfall since the last week of July, moreover, has refilled most of the reservoirs which were depleted substantially due to last year's drought. According to the Central Water Commission, total water stock in the 81 major reservoirs was 90.777 million cubic metres (BCM) on 1 September 2010. This level is nearly 34% above the last year's corresponding level and 2% above the long period average.

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 key benchmark indices extended gains for the second consecutive trading session on Tuesday, 7 September 2010, with good monsoon rains supporting stock prices. The BSE 30-share Sensex rose 85.01 points or 0.46% to 18,645.06, its highest closing since 5 February 2008.

As per provisional figures on NSE, foreign funds sold shares worth Rs 20.88 crore and domestic funds bought shares worth Rs 441.14 crore on Tuesday.