Market may snap recent losses on positive Asia; food inflation data eyed

The market may snap last six days losses on positive Asia after Federal Reserve left interest rates unchanged and signaled that low rates would remain for the extended period. However, equities are likely to remain volatile as traders roll positions in the derivative segment from January 2010 series to February 2010 series ahead of the expiry of the near-month January 2010 contracts today, 28 January 2010.
The government will today unveil data on some wholesale price indices for the year through 16 January 2010 viz. the food price index, the primary articles index and the fuel price index.
Among prominent results, Cipla and Tata Steel will announce their quarterly result today.
The Reserve Bank of India need not take monetary measures to contain food inflation, the farm minister Sharad Pawar said on Wednesday. Sharad Pawar also said the wholesale sugar prices have already come down and retail prices may also follow suit soon.
The marketmen expect 50 basis point increase in the cash reserve ratio (CRR), or the proportion of deposits banks must keep with the Reserve Bank in Reserve Bank of India (RBI)'s quarterly monetary policy review scheduled to be announced on Friday, 29 January 2010.
Inflation has surged, primarily driven by a sharp rise in food prices after a weak monsoon. Signs of economic recovery are also evident in strong GDP and industrial output data. The RBI says the rise in inflation driven by food prices is a supply-side issue monetary policy cannot address. Still, it is worried about inflation pressures spilling over to the broader economy, and will watch for signs of demand-side price pressures in indicators such as asset prices, credit growth, and manufacturing prices.
The widely watched wholesale price index rose in December by 7.3 % over a year earlier, its fastest pace since November 2008 and jumping from 4.8 % in November. Food prices rose 16.81 %t in the 12 months to 9 January 2010, easing from a rise of nearly 20 % in early December.
Asian stocks gained on Thursday after Federal Reserve left interest rates unchanged at record low. The key benchmark indices in Hong Kong, Japan, Indonesia, South Korea, Singapore and Taiwan rose by between 0.61% to 1.85%. But, China's Shanghai Composite fell 0.1%.
US stocks eked out gains led by tech stocks and financials on Wednesday, which rebounded amid relief that the Fed's statement offered no surprises. Stocks had languished for much of the day amid some disappointing earnings outlooks and an unexpected drop in home sales but recovered in the late trade. Annualized new home sales for December declined 7.6% against expectations of 3% rise. The Dow Jones Industrial Average added 41.87 points, or 0.4%, to 10,236.16. The Standard & Poor's 500 index gained 5.33 points, or 0.5%, to 1,097.50, while the Nasdaq Composite Index added 17.68 points, or 0.8%, to 2,221.41.
After a two-day meeting, the Federal Reserve left interest rates unchanged. Policy makers kept the "extended period" language in its statement, referring to how long they will leave interest rates low. The policy statement reflected a somewhat brighter tone than it had at the previous meeting in December, although the Fed removed a reference to improvement in the housing market
Closer home, the key benchmark indices suffered a severe setback on Wednesday extending losses for the sixth straight day on weak global cues. The BSE 30-share Sensex plunged 490.64 points or 2.92% to 16,289.82 on that day.