Market may gain on firm Asian stocks; Bharti, Hero Honda Q3 results in focus

The market may rebound tracking firm Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 66.50 points at the opening bell..

Bharti Airtel and Hero Honda report third quarter results today, 2 February 2011

As per provisional figures, foreign funds sold shares worth Rs 1036.80 crore and domestic funds bought shares worth Rs 630.40 crore on Tuesday when market closed at their five month lows.



Asian stocks rose on Wednesday after global markets rallied on strong manufacturing data, robust U.S. earnings and easing concerns about the Middle East. The key benchmark indices in Hong Kong, Indonesia, Japan and Singapore rose by between 0.69% to 1.91%.The Chinese stock markets are shut from 2 February 2011 to 8 February 2011 for the Lunar New Year holiday. Tawanese and South Korean markets were also closed today.

In US market action, The Dow Jones and S&P 500 closed at their highest levels since June 2008 on Tuesday and looked poised for more gains after strong earnings and signs of a surge in U.S. manufacturing.

Signaling improvement in economic growth, the U.S. manufacturing sector expanded at its fastest pace in nearly seven years in January, according to the Institute for Supply Management. The index's employment component rose to its highest since 1973.

Back home, the results announced so far showed that the combined net profit of a total of 1,474 companies rose 24% to Rs 68,891 crore on 21% rise in sales to Rs 5,67,274 crore in Q3 December 2010 over Q3 December 2009.

A recent data had showed that the government's fiscal deficit in the April-December 2010 period of fiscal 2010-11 declined 44.75% to Rs 1.71 lakh crore, from Rs 3.09 lakh crore in the same period last fiscal. The deficit during the period is just 44.9% of the Budget Estimate of Rs 3.81 lakh crore for the whole fiscal.

Exports in December rose an annual 36.4% to $22.5 billion, while imports for the month fell 11.1% on the year to $25.1 billion, the latest government data showed. The trade deficit in December narrowed to $2.6 billion compared with $8.9 billion in November. Exports rose an annual 29.5% to $164.7 billion in April-December 2010.

The manufacturing sector expanded at a slightly faster pace in January 2011 on the back of output and new order growth but inflationary pressures persisted, a business survey showed. The HSBC Markit Purchasing Managers' Index, based on a survey of around 500 companies, edged up to 56.8 in January from 56.7 in December. That was the 22nd consecutive month the key index of manufacturing has been above the reading of 50 that divides growth from contraction.

The GDP growth for the 2009/10 fiscal year has been provisionally revised upwards to 8% from 7.4%, a government statement said on Monday. "The estimates of GDP and other aggregates for the previous years have been revised on account of using the new series of wholesale price index (WPI) with base 2004-05 and also subsequent revision in index of industrial production (IIP)," the Central Statistical Organisation said in a statement on Monday.

The food price index rose 15.57% and the fuel price index climbed 10.87% in the year to 15 January 2011, government data, last week, showed. In the prior week, annual food and fuel inflation stood at 15.52% and 11.53%, respectively. The primary articles 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 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 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 RBI stuck with its 8.5% GDP growth forecast for the current fiscal year, but with an upside bias.

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.

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.