Market may extend fall on weak global cues; inflation eyed

The market may extend last three days fall on weak global cues. Investors will keenly watch the inflation data for the week ended 17 October 2009. The Reserve Bank of India at its monetary policy review on Tuesday left its key rates unchanged, but raised the wholesale price-based inflation projection for end-March 2010 to 6.5 % with an upward bias, from 5 % earlier.
Intraday volatility will remain high as traders rolled positions in the derivatives segment from October 2009 series to November 2009 series ahead of the expiry October 2009 contracts today, 29 October 2009.
Concerns that interest rates may rise sooner-than-expected had spooked the market last two days, after the Reserve Bank of India at a quarterly policy review on Tuesday sharply raised inflation forecast. However, analysts say that monetary policy could be ineffective in reining in a rise in inflation caused by supply shortage. A surge in food prices caused by production shortage has been a key reason for the rise in inflation in the past few weeks.
The Reserve Bank of India (RBI) on Tuesday withdrew emergency liquidity support measures that were implemented in the aftermath of the global financial crisis. The central bank warned of possible asset price bubbles and raised banks' provisioning requirements for commercial real estate loans. The central bank said the precise challenge for the Reserve Bank of India is to support the economic recovery process without compromising on price stability. Growth drivers warrant a delayed exit, while inflation concerns call for an early exit, it said. Premature exit will derail the fragile growth, but a delayed exit can potentially engender inflation expectations, the RBI said.
The RBI raised the statutory liquidity ratio (SLR) to 25% from 24% with effect from 7 November 2009. SLR is the minimum share of bank deposits to be held in approved government securities. By hiking the SLR, the RBI seems to be sending a signal that the high fiscal deficit will continue. The SLR hike will ensure easy funding of the government's borrowing programme for not just this year but the next fiscal as well
The RBI raised projection of inflation to 6.5% with an upside bias at end March 2010 from earlier 5%.
Meanwhile, the latest economic data showed infrastructure sector output grew 4% in September 2009 from a year earlier, slower than upwardly revised annual growth of 7.8% in August 2009. The infrastructure sector accounts for 26.7% of the industrial output. During April-September, the first half of the 2009/10 year, output rose 5% compared with 3.4% in the same period in 2008/09.
Energy major Reliance Industries will be in action the continued pressure as it unveils Q2 results today, 29 October 2009. The continued pressure on gross refining margins, or the difference between the price of crude and the price of refined petroleum products, is seen weighing on the company's bottom-line in Q2 September 2009, in spite of higher gas production and refining throughput. RIL
A total of eight brokerages expect a between a 9% fall to a 1.4% rise in RIL's net profit at between Rs 3752.10 crore to Rs 4178 crore in Q2 September 2009 over Q2 September 2008. Their expectations peg a between 23% fall to a rise of 19.8% in revenue at between Rs 34292.90 crore to Rs 53667.70 crore in Q2 September 2009 over Q2 September 2008.
ONGC, Cairn India, DLF, Grasim Industries, Mahindra & Mahindra, Sterlite Industries, Tata Power Company, Adani Power, Britannia Industries, Gammon Infrastructure, HOEC, NHPC, Oil India, REC, Religare Enterprises, Shopper's Stop, Sobha Developers, Tata Chemicals, TTML, Voltas among others will announce their Q2 September 2009 result today.
Asian stocks dropped on Thursday extending a global decline, after the new-home sales unexpectedly fell in the U.S. The key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan fell by between 1.17% to 3.48%.
Japanese manufacturers increased production for a seventh month in September, extending the longest stretch of gains in 12 years, as spending by governments worldwide helped to revive trade. Output rose 1.4 % in September 2009 from August, when it climbed 1.6%.
US markets on Wednesday, posted their biggest losses since 1 October on the back of worries about the recovery process. An unexpected decrease in new-home sales weighed on the markets. Sales dropped 3.6% in September and August's gain was revised lower. Also Goldman Sachs slashed its forecast for third-quarter GDP to 2.7% from 3%. The Dow was down 119.48 points, or 1.2%, to 9,762.69. The S&P 500 index was down 20.78 points, or 2%, to 1,042.63. The Nasdaq dropped 56.48 points, or 2.7%, to 2,059.61.
Back home, the supply of paper by Indian firms appear limitless, raising concerns that additional share sales will suck liquidity from the secondary equity market. As per reports, Indian firms have garnered about $9 billion (Rs 32,400 crore at the current exchange rates) through sale of shares and convertible bonds to institutional buyers since April 2009. Indian companies are taking advantage of a surge in liquidity to recapitalize and fund capital expenditure after being starved of cash last year.
Most of these companies - from industries ranging from liquor and spirits to infotech - issued equity shares to a select group of investors by way of qualified institutional placement or QIP. If the enabling resolutions passed by the companies are any indication, Indian firms are gearing up to raise $15 billion (Rs 69,427 crore) in the next six months. The list includes Hindalco (Rs 2,900 crore), JSW Steel ($1 billion), India Cements ($100 million), Essar Oil ($2 billion), Tata Steel (Rs 5,000 crore), Jet Airways ($ 400 million) and Bharat Forge ($150 million).
Unlisted Reliance Infratel announced on 22 September 2009 its intention to raise Rs 5,000 crore from the primary market. Divestment of state-run firms by the government may also increase the supply of paper in the market.
The government recently approved stake sales in state-run power producer NTPC and another unlisted power firm Satluj Jal Vidyut Nigam which reflects the country's resolve to speed up reforms and raise more resources for social schemes. On Monday, Trade Minister Anand Sharma said the Union Cabinet had approved a 5% stake sale in NTPC, and 10% in, an unlisted power producer. On 16 October 2009, Prime Minister Manmohan Singh said many state-run firms are eager to list their shares in the stock market as it would help unlock their value.
The government has approved a follow-on public offering of 20% of state run Steel Authority of India, the steel minister said on Wednesday, 21 October 2009. The Government of India owns nearly 86% of Sail.
As per provisional data on NSE, foreign unds sold shares worth Rs 723.66 crore and domestic funds bought shares worth Rs 896.23 crore on Wednesday.