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Tuesday, December 14, 2010

Market may open tad higher on firm Asian stocks; inflation data eyed


The market may open flat to slightly higher,extending two-day gains, tacking cues from firm Asian stocks. Trading of Nifty futures on the Singapore stock exchange indicate a gain of 6 points at the opening bell. The government will today, 14 December 2010 announce inflation data for the month of November 2010. The rate of inflation stood at 8.58% in October 2010, marginally lower than 8.62% in September 2010.



Most Asian stocks eked out small gains Tuesday, 14 December 2010 as investors digested news that President Barack Obama's tax-cut package had gained enough votes in the Senate. The key benchmark indices in Hong Kong, Indonesia, Japan, South Korea and Taiwan rose by between 0.01% to 0.29%. The key benchmark indices in China and Singapore fell 0.09% and 0.12% respectively.

China's central bank has reportedly told six of the country's biggest lenders that a special increase in required reserves will be extended, the latest attempt to quell inflation in a campaign that looks set to intensify. That followed an official reserve requirement increase for all banks, the third in a month, that was announced on Friday, 10 December 2010.

In New York Monday, 13 December 2010 US stocks edged higher. Sentiment was bolstered by expectations that the tax deal would be successful. Economists expect the nearly $900 billion tax package to boost economic growth in the world's largest economy may increase the size of the budget deficit.

Back home, the next major trigger for the equity market is the advance tax payment of corporates for the third installment, which falls due on 15 December 2010. The advance tax figures will provide a cue on Q3 December 2010 corporate earnings.

Data announced on Friday, 10 December 2010, showed industrial output in October rose a faster-than-expected 10.8% from a year earlier, higher than the previous month's annual growth of 4.4%. Manufacturing output rose an annual 11.3% in October.

Business activity in India's services sector surged to a four-month high in November 2010, driven by robust growth in new orders, a survey showed on 3 December 2010.

The manufacturing activity strengthened further in November 2010 and the strong growth momentum is showing up in rising inflation pressures, according to an HSBC survey released on 1 December 2010. The HSBC Manufacturing Purchasing Managers' Index rose to 58.4 in November from 57.2 in October, the survey said.

Exports rose an annual 26.8% to $18.9 billion in November 2010, while imports for the month grew 11.2% on the year to $27.8 billion, as the provisional data released byTrade Secretary Rahul Khullar showed on Wednesday.

The large capital flows into India are not a matter of concern, according to a mid-year review of the Indian economy tabled by Finance Minister Pranab Mukherjee in parliament last week. Even after this month's sell-off, the inflow of foreign funds in Indian stocks remains at record level this year.

According to mid-year review, the economy may grow by 9% during the year ending March 2011 (FY 2011). Average headline inflation is seen at 8.98% for the year, it said. The report indicated that the country's fiscal deficit will not be more than 5.5% of its gross domestic product in FY 2011.

The Indian economy grew a robust 8.9% year-on-year in Q2 September 2010, maintaining the same pace of expansion as the previous quarter, boosted by farm output and manufacturing, government data released Tuesday, 30 November 2010 showed. The manufacturing sector grew an annual 9.8% and farm output grew an annual 4.4% in Q2 September 2010. The government revised upwards the Q1 June 2010 GDP growth to 8.9% from 8.8% earlier.

But, high inflation remains the major cause of concern for the policymakers. The food price index rose 8.69%, while the fuel price index climbed 9.99% in the year to 27 November 2010, government data on Thursday showed. In the prior week, annual food and fuel inflation stood at 8.60% and 9.99% respectively. The primary articlesprice index was up 12.66% in the latest week compared with an annual rise of 12.72% a week earlier.

The Reserve Bank of India (RBI) undertakes a mid-quarter policy review on Thursday, 16 December 2010. RBI governor D Subbarao recently expressed discomfort with the current levels of inflation. "Inflation is coming down but still above the Reserve Bank's tolerance level; growth on the other hand has been encouraging," Subbarao said.

At a quarterly policy review early last month, the central bank had signaled a pause in its policy tightening drive that began in October 2009. Based purely on current growth and inflation trends, the Reserve Bank of India (RBI) believes that the likelihood of further rate actions in the immediate future is relatively low, RBI governor D Subbarao had said in a monetary policy statement on 2 November 2010. "However, in an uncertain world, we need to be prepared to respond appropriately to shocks that may emanate from either the global or domestic environment," he had added.

As per provisional figures on NSE, foreign funds sold shares worth Rs 287.77 crore while domestic funds bought shares worth Rs 334.54 crore on Monday, 13 December 2010.