Market may slide on weak Asian stocks

The market may open on a weak note, tracking losses in Asian stocks. Trading of S&P CNX Nifty on the Singapore stock exchange indicates a fall of 85 points at the opening bell. Foreign institutional investors (FIIs) sold shares worth Rs 459.47 crore on Friday, 30 September 2011, as per provisional data from the stock exchanges. FIIs sold shares worth Rs 3088.88 crore in September 2011, as per data from stock exchanges. Domestic institutions absorbed part of the selling by FIIs, with an inflow of Rs 1747.07 crore during the month just gone by.



Key benchmark indices dropped on Friday, 30 September 2011, as world stocks fell on concerns European leaders won't move as quickly as hoped to take additional steps to contain the ongoing debt crisis in the euro zone. The BSE Sensex lost 244.31 points or 1.46% to settle at 16,453.76, its lowest closing level since 28 September 2011.

In corporate news, Tata Motor's total sales rose 22% to 78,786 units in September 2011 over September 2010. The homegrown firm's total passenger vehicles sales in the domestic market stood at 26,319 units in September, up 10.22% from 23,877 units in the same month last year. The company's total exports grew by 23% to 6,220 units in September 2011 over September 2010.

In the commercial vehicles segment, the company sold 46,247 units in the domestic market in September, compared to 35,734 units in the same month last year, up 29%. Light commercial vehicle sales during the month amounted to 28,092 units, a growth of 47% over last year, while medium and heavy commercial vehicle sales stood at 18,155 units, a growth of 9% compared to September, 2010.

Mahindra & Mahindra's total auto sales rose 25% to 44,137 units in September 2011 over September 2010. The company's domestic sales stood at 41,136 units during September 2011, as against 33,866 units during September 2010, an increase of 21%.

M&M's Passenger Vehicles segment (which includes the Utility vehicles and Verito) registered a growth of 11%, having sold 19447 units in September 2011, as against 17,537 units during September 2010. The 4-wheeler commercial segment which includes the passenger and load categories registered a phenomenal growth of 45%.

Speaking on the numbers, Rajesh Jejurikar, Chief Executive, Automotive Division, Mahindra & Mahindra said, "We are delighted with the 28% growth that we have clocked for the first half of FY 2012 (year ending March 2012), and the record sales of 44,137 that we have clocked in September 2011. We are also very excited with the initial response to our global SUV the XUV5OO and do hope to further consolidate our position in the SUV market with this launch".

Maruti Suzuki India's total vehicle sales fell 20.8% to 85,565 units in September 2011 over September 2010. Maruti Suzuki, 54.2% owned by Japan's Suzuki Motor Corp, said disruption in production during September at one its plants due to labour unrest, adversely impacted sales. Maruti Suzuki India will resume the full scale production from the Manesar plant from Monday, 3 October 2011, as the 33-day long standoff with workers has ended. The over-a-month long standoff between the management and workers of the Manesar plant ended early on Saturday following talks brokered by the Haryana state government.

As per the agreement, workers agreed to sign the contentious good conduct bond laid down by the management, while the company agreed to conditionally take back 18 trainees who were suspended.

The near-term major trigger for the market is Q2 September 2011 results. The results are expected to be muted-to-weak due slower volume growth, higher input costs, rising wages, higher interest rates and slowdown in investment growth. Advance tax data from top 100 companies corroborates this view. The advance tax payment by top 100 companies rose a modest 9.9% in Q2 September 2011 from a year ago against 19% growth in Q1 June 2011, suggesting corporate profit growth is likely to be muted in the second quarter.

Among the big companies that have paid lower advance tax, indicating a drop in profits, include State Bank of India (SBI), Maruti Suzuki India and state-run Neyveli Lignite Corporation. SBI's advance tax payment declined 14.2% to Rs 1650 crore in Q2 September 2011. Maruti's tax payment fell 55.8% to Rs 120 crore. Neyveli Lignite tax payment plunged 50.1% to Rs 66 crore. But, Reliance Industries' (RIL) advance tax payment jumped 37.6% to Rs 1800 crore, hinting at good Q2 results from the diversified firm.

Investors will closely watch the management commentary at the time of announcement of Q2 September 2011 results, which will provide cues on futures earnings outlook. IT bellwether Infosys kickstarts the Q2 September 2011 earnings season on 12 October 2011. Housing finance major HDFC unveils Q2 results on 17 October 2011. HDFC Bank unveils Q2 results on 19 October 2011. Bajaj Auto reveals Q2 results on 20 October 2011. Colgate Palmolive (India) and BPCL unveil Q2 results on 31 October 2011.

The market regulator Securities and Exchange Board of India recently set a minimum net worth of Rs 100 crore for companies that wish to issue structured products or market-linked debentures to raise funds. Sebi also set the minimum size for such issues at Rs 10 lakh. Market-linked debentures are hybrid products which have the features of usual debt securities, but offer market-linked returns like an exchange-traded derivative. The issuer company will have to appoint a third party, a credit-rating company registered with the regulator, which will provide the value of the security at least once a week, Sebi said in a circular.

A news agency last week quoted principal economic adviser to the ministry of finance Dipak Dasgupta as saying that the government has no plans to tax or impose restrictions on capital outflows. He said the government will instead focus on liberalising fund inflows into the economy, particularly via overseas borrowing.

Finance Minister Pranab Mukherjee said last month that central banks in emerging economies have been forced to raise interest rates repeatedly as they battle high inflation, exposing them to volatile capital flows. "An issue of immediate concern for emerging economies is managing large capital flows," he said. "Large and volatile capital flows to emerging markets can be destabilizing as they lead to high exchange rate volatility and in some cases make it incumbent to maintain high levels of foreign exchange reserves as an insurance against sudden and large-scale flight of international capital."

The government last month raised the limit of overseas borrowing for companies to $750 million from $500 million. Indian companies can also now raise loans up to $1 billion in Chinese yuan.

Given the lackluster initial FII response to the government's sharply raising the ceiling of FII investment in long-term corporate bonds issued by the companies in the infrastructure sector in March 2011, the government on 12 September 2011, further relaxed the norms on FII investment in such bonds. Sebi had in early August 2011 allowed Qualified Foreign Investors (QFIs) to subscribe to Mutual Fund Debt Schemes which invest in the infrastructure sector subject to a total overall ceiling of $3 billion within the total ceiling of $25 billion.

The government, last week, raised its borrowing target for the current fiscal year by Rs 52800 crore, surprising the market and fueling worries that it may even overshoot the new estimate because of muted revenue growth amid a slowing economy and swelling subsidies. The government will borrow Rs 2.2 lakh crore during October 2011-March 2012 period, or the second half of the fiscal year, compared with the target of Rs 1.67 lakh crore announced in budget in February 2011. C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, on Thursday, 29 September 2011, said it is going to be difficult to achieve fiscal deficit target of 4.6% of GDP for the year ending March 2012.

The government's new borrowing programme may crowd out private borrowers who come into the market in the second half of the year. Credit growth normally picks up after October every year when the busy season starts.

Atsi Sheth, a New York-based vice president and senior analyst at Moody's Investors Service said in a media interview last week that Moody's is unlikely to change its rating outlook on India for now, though the extent of the increase in the government's borrowing target is a surprise. The possibility of fiscal slippage is, however, already factored into the sovereign rating, Sheth said.

The government is still hopeful of meeting the divestment target of Rs 40000 crore budgeted for the current fiscal year that ends in March, economic affairs secretary, R. Gopalan, said on 28 September 2011. The government, last month, deferred the about Rs 11000-crore follow-on public offer plan in state-run energy major ONGC.

Food inflation rate edged higher in the week ended 17 September 2011 as meat and vegetables turned costlier, once again reflecting stubborn pricing pressures that reinforce expectations of more monetary tightening. Food price index rose 9.13% and the fuel price index climbed 14.69% in the year to 17 September 2011, government data on Thursday, 29 September 2011, showed. In the previous week, annual food and fuel inflation stood at 8.84% and 13.96%, respectively. Rangarajan on Thursday, 29 September 2011, said there has to be definite signs of inflation falling before the Reserve Bank of India can reverse its current policy.

Reserve Bank of India (RBI) deputy governor Subir Gokarn on Wednesday, 28 September 2011, said poor supply responses to rising demand for protein-rich food aren't helping to lower the inflation rate. His comment underscores the central bank's growing dismay over the federal government's loose fiscal stance that is diluting monetary policy moves and weakening its battle against inflation. "Energy prices have remained very steady. I think (it) is a huge problem to deal with because it certainly reduces the space that monetary policy has," Mr. Gokarn said at a conference.

RBI said at a monetary policy review on 16 September 2011 that it is imperative to persist with the current anti-inflationary stance because a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. The RBI raised repo rate by 25 basis points on 16 September 2011.

For India, a weak rupee will offset the benefit of the recent steep fall in global commodity prices triggered by global growth worries. Most commodities imported by India, particularly oil, are denominated in dollars making these expensive for India. The rupee has witnessed a steep fall recently.

Going forward, the stance of the monetary will be influenced by signs of downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments, RBI said in its 16 September 2011 policy statement. The overall tone of the RBI's latest policy was softer than the previous policy announcement which was extremely hawkish.

Inflation in India remains high and will probably remain in a range of 9% to 10% until November 2011, Gokarn said last month. RBI said on 16 September 2011 that corporate margins moderated across several sectors in Q1 June 2011 compared to levels in Q4 March 2011. However, barring a few sectors, significant pass-through of rising input costs is still visible, RBI said.

RBI governor D Subbarao, last week, said inflation rate remains above the level the central bank deems acceptable. Inflation has been fairly stubborn, Subbarao said in New York. "Above a threshold, you can't accept high inflation to have higher growth," he said, adding that the price-rise limit is as much as 6% for the nation. A rate of 4% to 6% is the short-term comfort range for inflation, Subbarao said. He said the central expects inflation to slow by March 2012, but more slowly than initially expected. Intervention in forex markets brings unexpected consequences, Subbarao said.

Monsoon rains at the end of the June-September season were 1% above the 50-year average, raising hopes of improved crop supplies at a time when the country is battling high food prices. The rains normally start subsiding in the first week of September, but they continued two weeks longer this year. This has boosted the prospects of not only summer-sown crops such as rice, but also winter-sown staples like wheat, because of good soil moisture.

Sowing of winter crops usually starts in October and picks up between the end of November and the first half of December. Apart from wheat, rapeseed and pulses are among other important crops grown during the winter season. India is aiming for a record foodgrain output of 245 million tons in the crop year that started on 1 July.

Prime Minister Manmohan Singh, seeking to defend his government amid a growing political crisis, on Tuesday, 27 September 2011, denied there was infighting in his cabinet over a corruption scandal and accused the leading opposition party of being "prematurely restless" for early elections. The disclosure last week of a Finance Ministry memo about a controversial 2008 sale of mobile-phone spectrum was widely interpreted by the media as an attempt by Finance Minister Pranab Mukherjee to blame Home Minister P. Chidambaram, his predecessor as finance minister, for failing to prevent what turned into a massive alleged telecom corruption scam. Reports of a battle between the two top ministers have dominated the news for the past several days, especially after both of them met Congress President Sonia Gandhi on Monday, 26 September 2011.

Singh said there is no room for dissension in his cabinet. Mukherjee had told reporters on Monday that Chidambaram is a "valued colleague" and a "pillar of strength for the party and government."

Asian stocks fell on Monday as the latest data showed US consumer spending slowed as incomes unexpectedly dropped, souring the earnings outlook for exporters. Key benchmark indices in Indonesia, Taiwan, Hong Kong, Japan, China and Singapore were down by between 0.25% to 4.11%.

US stocks ended their worst quarter since the depths of the 2008 credit crisis, crippled by Europe's debt debacle, a US credit downgrade and a sputtering global economy. Business activity in the US Midwest grew more than expected in September, buoyed by new orders and a jump in employment. The Institute for Supply Management-Chicago business barometer surprisingly rose in September more than economists had forecast. US consumer sentiment improved in late September but worries persisted about jobs and finances, which could curb household spending in the coming months, the Thomson Reuters/University of Michigan final September reading of the overall index on consumer sentiment showed.

The Greek cabinet approved a measure on Sunday to begin reducing the number of state workers, a contentious part of an austerity plan aimed at freeing up EU and IMF loans. The plan creates a "labour reserve" allowing state workers to be placed on partial pay and be dismissed after a year. The government has said it would put 30,000 workers in the reserve by the end of this year.