Market may fall on weak Asian stocks; RBI's quarterly monetary policy eyed

The market may fall on weak Asian stocks taking cue from weak close for US stocks on Thursday after more Americans than estimated filed unemployment-benefit claims. Investors may remain cautious ahead of Reserve Bank of India's quarterly monetary policy due to be announced today.
The annual food price inflation accelerated for the first time in four weeks, with the Reserve Bank of India (RBI) looking set to tighten its monetary policy today, 29 January 2010 to prevent it spilling over to the broader economy.
Economists widely expect a 50-basis point rise in banks' cash reserve ratio (CRR), the proportion of deposits lenders must keep with the RBI in cash. The food price index rose 17.40 % in the 12 months to 16 January 2010, higher than an annual rise of 16.81 % in the previous week, data released on Thursday showed. The fuel index rose to an annual 5.70 %, lower than an annual rise of 6.34 % in the previous week. Higher food prices following a bad harvest of summer-sown crops are expected to keep headline inflation elevated.
The economy grew 7.9 % in the quarter through September, its fastest in 18 months, while industrial production grew in November at its fastest pace in more than two years at 11.7 %.That growth, however, has largely been fuelled by government stimulus spending and cheap credit following policy rate cuts totaling 425 basis points between October 2008 and April 2009.
Inflation and a high fiscal deficit are major risks to India's ambitious plan to return economic growth back to the 9 percent a year level seen between 2005/06 and 2007/08
The Reserve Bank of India on Thursday released its macroeconomic report, implying strongly that growth was returning to the economy and that the central bank's focus was now on taming inflation.
It also said there is a possibility of high food prices spilling over to other parts of the economy, a day before it is expected to tighten policy at its quarterly review of monetary policy.The central bank said the possibility of surge in capital inflows along with the domestic liquidity condition may also affect inflationary conditions.
There are expectations of higher tax rates and massive disinvestment in the coming Budget to help reduce the huge fiscal deficit from 6.8% of GDP this year to 3% over the next five years. Finance minister Pranab Mukherjee will reportedly package his higher indirect tax rates as an exit from the fiscal stimulus of 2008-09 and a return to the path of fiscal responsibility.
Meanwhile, the UPA government's proposed comprehensive indirect tax reform, goods and services tax (GST), will reportedly miss its scheduled rollout from 1 April, 2010, a temporary setback to creation of a unified national market for goods and services in the country, but experts say this will give more time to the centre and states to prepare a more robust framework.
Among prominent results, Tata Motors, Reliance Infrastructure, Sun Pharmaceutical Industries and NTPC will announce their Q3 result today.
Asian stocks fell on Friday after more Americans than estimated filed unemployment-benefit claims, the yen appreciated and metal prices tumbled. The key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan fell by between 0.4% to 1.72%. But, China's Shanghai Composite rose 0.89%.
Japan's industrial production rose and unemployment fell in December, signaling a continued recovery, while central bankers considered the threat to the economy from exchange rates.
US stocks dropped on Thursday as poor outlooks from Motorola and Qualcomm dented optimism in the technology sector while worries about Greece's fiscal health dragged on sentiment. Stocks added to losses during the regular session following news that US Federal Reserve Chairman Ben Bernanke was confirmed by the US Senate. The Dow Jones industrial average fell 115.70 points, or 1.13%, to end at 10,120.46. The Standard & Poor's 500 Index lost 12.97 points, or 1.18%, to 1,084.53. The Nasdaq Composite Index declined 42.41 points, or 1.91%, to close at 2,179.00.
The government data showed new orders for durable goods, or long-lasting manufactured goods such as washing machines and refrigerators, edged higher in December, and the number of workers filing claims for jobless benefits fell last week, signalling that the US economy remains on the path to recovery. However the jobless claims were more than estimated.
Closer home, the key benchmark indices closed with small gains on Thursday, 28 January 2010 in what was a choppy trading session, halting last six days' steep losses. Firm global stocks supported domestic bourses. The BSE 30-share Sensex rose 17.05 points or 0.1% to 16,306.87 on that day.
As per provisional figures on NSE, foreign funds sold shares worth Rs 2813.06 crore and domestic funds bought shares worth Rs 1979.58 crore on Thursday.