Market may extend recent losses on weak Asian stocks; HDFC Bank eyed

The market may extend recent losses on weak Asian stocks. The recent heavy selling by foreign funds may also dampen sentiment. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate a fall of 22.50 points at the opening bell. Among prominent results, ONGC announces Q3 result today.



HDFC bank announced after market hours on Thursday net profit rose 32.9% to Rs 1087.83 crore on 28.85% rise in total income to Rs 6357.78 crore in Q3 December 2010 over Q3 December 2009.

As per provisional figures foreign funds sold shares worth Rs 1651.41 crore while domestic funds sold shares worth Rs 255.59 crore on Thursday, 27 January 2011.

Asian stocks eased on Friday before a slew of earnings from corporate heavyweights in the region.The key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore and South Korea fell by between 0.06% to 0.92%. Taiwan's Taiwan Weighted rose 0.13%.

Strong corporate earnings led US stocks to a 29-month closing high for a second day on Thursday. Weekly initial jobless claims surged to the highest level since late October while factory orders fell unexpectedly in December, the government said.

On Thursday, Standard & Poor's cut Japan's credit rating by a notch for the first time since 2002 and Moody's warned that it might turn negative on the U.S. rating outlook if the deficit continued to swell.

Back home, the results announced so far showed that the combined net profit of a total of 621 companies rose 19.8% to Rs 45547 crore on 19.8% rise in sales to Rs 385401 crore in Q3 December 2010 over Q3 December 2009.

The food price index rose 15.57% and the fuel price index climbed 10.87% in the year to 15 January 2011, government data on Thursday showed. In the prior week, annual food and fuel inflation stood at 15.52% and 11.53%. The primary articles price index was up 17.26% in the latest week, compared with an annual rise of 17.03% a week earlier.

To control surging inflation, the Reserve Bank of India (RBI) at its quarterly policy review on Tuesday, 25 January 2011, raised repo rate by 25 basis points to 6.5% and the reverse repo rate by 25 basis points to 5.5%. Repo rate is the rate at which the RBI lends money to banks. Reverse repo is the rate at which RBI borrows funds from banks. The central bank held the cash reserve ratio steady at 6%.

"As high food inflation persists, the prospect of it spilling over to the general inflation process is rapidly becoming a reality," Reserve Bank of India (RBI) Governor Duvvuri Subbarao said in the policy document released on Tuesday, 25 January 2011. The RBI lifted its headline inflation projection for March 2011 to 7% from 5.5% previously. The central bank said inflation is likely to resume its moderating trend in the first quarter of 2011-12. The RBI stuck with its 8.5% GDP growth forecast for the current fiscal year, but with an upside bias.

The RBI extended the period for offering additional liquidity support to commercial lenders by more than two months in view of the existing cash crunch in the banking system. Banks can now access the additional liquidity support, equal to 1% of banks' net demand and time deposits, until 8 April 2011, as compared to 28 January 2011, when the facility was due to expire. The frictional liquidity shortage is expected to ease as government balances adjust to the expenditure schedule. However, banks need to focus on the underlying structural cause of liquidity tightness arising out of the gap between the credit and deposit growth rates, the RBI said.

The combined risks from inflation, the high current account deficit (CAD) and fiscal situation contribute to an increase in uncertainty about economic stability that consumers and investors will have to deal with, RBI said. To the extent that this deters consumption and investment decisions, growth may be impacted. While slower growth may contribute to some dampening of inflation and a narrowing of the CAD, it can also have significant impact on capital inflows, asset prices and fiscal consolidation, thereby aggravating some of the risks that have already been identified, it said.

It is important to emphasise that the role of monetary policy in the current inflationary situation is confined to containment and prevention of food and energy prices from spilling over into generalised inflation and anchoring inflation expectations, the central bank said. Unless meaningful output enhancing measures are taken, the risks of food inflation becoming entrenched loom large and threaten both the sustainability of the current growth momentum and the realisation of its benefits by a large number of households, the RBI said.

Another challenge to effective management of inflation by monetary policy arises from the persistence of a large fiscal deficit, the central bank said. While the government may succeed in raising receipts, both from high tax buoyancy and one-off sources, the real measure of fiscal consolidation lies in improving the quality of expenditure. If the government is able to commit more resources to capital expenditure, it will help deal with some of the bottlenecks that contribute to supply-side inflationary pressures. With reference to revenue expenditure, while large and diffused subsidies may contribute in the short term to keeping supply-side inflationary pressures in check, they may more than offset this benefit by adding to aggregate demand, the RBI policy statement said.

Capital flows, which so far have been broadly sufficient to finance the CAD, may be adversely affected, the RBI said. Faster than expected global recovery may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India. This may increase the vulnerability of India's external sector. Hence, the composition of capital inflows needs to shift towards longer-term commitments such as foreign direct investment (FDI), the RBI said.