Market may extend recent steep losses on weak Asian stocks
The market may extend three-day 5.96% decline on weak Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 39.50 points at the opening bell. Asian stocks sank as investors took fright at the prospect of mass euro zone sovereign ratings downgrades after the outcome of a last chance European Union summit failed to convince markets.
Key benchmark indices declined for the third straight day to settle at their lowest level in more than 2 weeks on Monday, 12 December 2011, as data showing decline in industrial production in October 2011 for the first time in more than two years and weak European stocks dampened sentiment. The BSE Sensex lost 343.11 points or 2.12% to settle at 15,870.35, its lowest closing level since 25 November 2011.
Foreign institutional investors (FIIs) sold shares worth Rs. 428.30 crore on Monday, 12 December 2011, as per the provisional data from the stock exchanges. FIIs had sold shares worth Rs. 248.57 crore on Friday, 9 December 2011. The recent outflow followed sustained inflow early this month.
IT stocks will be in focus after the rupee dived to its lowest level ever on Monday, 12 December 2011, as investors sought refuge in dollar after factory output data pointed to a further slowdown in Asia’s third-largest economy. The partially convertible rupee fell 1.53% to settle at 52.84/85 to the dollar, its biggest one-day loss since November 21. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion’s share of revenue from exports.
The federal investigation agency reportedly unveiled new charges Monday in a multibillion-dollar telecommunications scandal, adding the diversified Essar Group and three of its executives to the suspects named in the high-profile case. The latest accusations follow two earlier sets of charges filed by the Central Bureau of Investigation against other companies and individuals as part of a probe into India’s 2008 allocation of mobile-phone spectrum and licenses. The agency is investigating allegations that the process favored some companies and caused the government a potential revenue loss of almost $7 billion, which would make the corruption scandal India’s biggest to date.
The CBI’s third set of charges, pertaining to alleged cheating and criminal conspiracy, names Essar Group Vice Chairman Ravikant Ruia; his nephew Anshuman Ruia, a group director; and Vikas Saraf, the group’s director of strategy, planning and mergers and acquisitions. Essar Group has denied the charges against the executives. The investigation agency filed the same charges on Monday against Kiran Khaitan, a sister of Ravikant Ruia; and her husband, Ishwari Prasad Khaitan, who are the founders of Loop Group, which owns Loop Telecom.
The third advance tax installment is due on Thursday, 15 December 2011, which may provide cues on Q3 December 2011 corporate earnings. Advance taxes are collected in four installments — 15% by 15 June; 40% by 15 September; 75% by 15 December and 100% by 15 March.
A government statement in parliament last month dashed hopes of a relief in securities transaction tax (STT). Junior finance minister S.S. Palanimanickam has said that the government has no proposal to lower the securities transaction tax (STT). There has been a speculation that the government will reduce STT in Union Budget 2012-2013 in a bid to revive sagging volumes on the bourses. Palanimanickam said in a written reply to Rajya Sabha that the securities transaction tax receipts had declined by around 18% to Rs. 2960 crore during the first six months in the current fiscal year from a year ago period.
Industrial production shrank 5.1% in October versus 11.3% growth in the same period a year earlier, data released by the Commerce Ministry showed on Monday, 12 December 2011. It was the first decline in industrial production in more than two years. Industrial output last fell in June 2009, when it shrank 1.8%. Manufacturing output, which has a 75.5% weight in the index of industrial production, fell 6% from a year earlier in October, compared with a 2.4% rise the previous month. Mining output shrank 7.2%, after falling 5.6% in September. September’s industrial production growth was revised upwards marginally to 2%, from 1.9% earlier.
The government on Friday, 9 December 2011, cut its economic growth forecast to 7.25%-7.75% from the previous 8% for the current year through March 2012 (FY 2012), and it also warned of possible fiscal slippage caused by global uncertainties. In a mid-year economic review presented in parliament on Friday, 9 December 2011, the finance ministry said that commitments on account of additional requirement on various subsidies will make it difficult to adhere to the total expenditure target for the current year. However the government promised to keep the slippage to a minimum as it broadly adheres to its long-term fiscal rigor, the report added. The government had pegged fiscal deficit at 4.6% of gross domestic product when it presented the Union Budget 2011-2012 in February 2011.
The reduction in GDP growth forecast for FY 2012 comes after the economy grew an annual 6.9% in the quarter ending September 2011, its slowest pace in more than two years. The government said headline inflation would decline from December 2011, expecting it to ease to 7% by March 2012.
The government also said that the Rs. 40000-crore stakes sale target in state-run companies would be hard to achieve this fiscal year, while tax receipts would suffer from the impact of the global slowdown. The government is considering options other than share sales to meet its divestment target in state-run companies for the fiscal year ending March, the junior finance minister said on Friday.
Food inflation in India slid further in the fourth week of November, falling under the 7% mark, data released by the Government showed on Thursday. Fuel inflation remained steady. Food inflation declined to 6.6% in the week ended November 26 from 8% in the preceding week, the Commerce & Industry Ministry said on Thursday. Food inflation stood at 8.93% in the corresponding week last year. Inflation in the Primary Articles group fell to 6.92% in the week under review, from 7.74% in the week ended November 19, according to the Commerce Ministry statement. It was at 14.01% in the year-ago period. Inflation in the Fuel & Power group stood at 15.53% in the week ended November 26, unchanged compared to the previous week, the latest data showed. It was at 10.07% in the comparable week of the previous year.
Easing food inflation could nudge the central bank to reverse its tight monetary policy stance as economic growth is stuttering. Food inflation has been a key driver of headline inflation in India over the past few years.
Data due on Wednesday 14 December 2011 on headline inflation for November 2011 will provide cues on the central bank’s likely policy stance at its mid-quarter monetary policy review on 16 December 2011. Inflation based on the wholesale price index (WPI) is projected to ease to 9% in November 2011, as per the median estimate of the poll carried out by Capital Market. Inflation, as measured by the wholesale price index (WPI), stood at 9.73% in October 2011 and 9.72% in September 2011.
India’s manufacturing sector expansion slowed in November as factory output grew at its slowest pace in nearly three years although export demand should provide some cheer for factories, a survey showed on 1 December 2011. The HSBC Markit India Manufacturing PMI fell to 51 in November from 52 in October, but has stayed above the 50 mark that divides growth from contraction for 32 months. The PMI was 50.4 in September.
On the flip side, India’s services sector expanded in November for the first time in two months as new business accelerated despite persistent inflationary pressures, a survey showed on Monday. The seasonally adjusted HSBC Markit Business Activity Index — based on a survey of around 400 firms — stood at 53.2 in November, above the 50-mark that separates growth from contraction. It had fallen to 49.1 in October after contracting for the first time in more than two years in September to 49.8. Despite tight monetary conditions, the sub-index for new business accelerated to 52.3 in November from 51 in October, driving the turnaround in the service sector.
India’s November exports are seen at $22.3 billion while imports for the month are seen at $35.9 billion, leaving a trade deficit f $13.6 billion, Trade Secretary Rahul Khullar told media reporters on Friday. Exports between April and November are seen up 33.2 percent from a year earlier to $192.7 billion, Khullar said, citing provisional data.
The Reserve Bank of India (RBI) announced a 25 basis points hike in its key policy rate viz. the repo rate to 8.5% after half-yearly review of the monetary policy on 25 October 2011. The central bank cut its GDP growth forecast for the current fiscal year through March 2012 to 7.6% from 8% earlier. But it retained its March-end inflation projection of 7%. RBI said the projected inflation trajectory indicates that the inflation rate will begin falling in December 2011 (January 2012 release) and then continue down a steady path to 7% by March 2012. It is expected to moderate further in the first half of 2012-13. This reflects a combination of commodity price movements and the cumulative impact of monetary tightening. Further, moderating inflation rates are likely to impact expectations favourably. RBI unveils mid-quarter monetary policy review on 16 December 2011.
Asian stocks sank on Tuesday as investors took fright at the prospect of mass euro zone sovereign ratings downgrades after the outcome of a last chance European Union summit failed to convince markets. Key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore, South Korea and Taiwan fell by between 0.66% to 1.68%.
Sharp criticisms of last week’s European sovereign-debt summit by credit-rating companies sent US stocks stumbling on Monday, underscoring investor worries that Europe’s crisis will last well into next year and could still trigger a global recession.
The Federal Open Market Committee (FOMC) holds a policy meeting later in the global day today, 13 December 2011. No change in the current policy for the fed funds rate target range of 0%-0.25% through mid-2013 is expected, nor is it expected that the Fed with expand its balance sheet through more asset purchases. This is the final scheduled meeting in 2011. The next is on 24-25 January 2012, at which the rotation of FOMC voters will take place.
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