Rising inflation pulled down Indian markets, while Asian markets remained positive after news reports of Dubai’s bailout package

Indian markets slipped on fears that recovery in the economy and a surge in the wholesale price inflation index may add pressure on the central bank to raise interest rates. The Sensex declined 21 points from Friday’s (11 December 2009) close, ending the day at 17,098. The Nifty closed at 5,106, down 12 points.

During the day, Reliance Industries Ltd (RIL) remained flat on reports that the company would take a call on submitting a final bid for bankrupt Dutch petrochemical company LyondellBasell (LB). The company is now concerned about LB’s high debt, with the company’s lenders having hiked interest rates to about 12%.

Bajaj Auto rose 3% after a leading foreign broker raised its rating on the stock to ‘buy’ from ‘neutral’, saying that demand for two-wheelers was growing. Bajaj Auto will reportedly stop producing scooters by March 2010 to focus on motorcycles.

Western India Shipyard rose 5%, after the company bagged an order worth Rs5 crore for the repair of a deepwater oil rig named JUR Noble Ed Holt.

Chambal Fertilizers & Chemicals’ step-down subsidiary ISGN Solutions Inc based in the US has completed the acquisition of Fiserv Fulfillment Services of Pennsylvania on 12 December 2009. The stock was down 1%.

ACC was up 5% on reports that the company’s cement plant in Thondebhavi, Karnataka, was inaugurated on Saturday, 12 December 2009. ACC Thondebhavi Cement Works was set up as a greenfield project.

During trading hours, trade minister Anand Sharma said that rising wholesale prices were a matter of concern and the government is monitoring prices of essential commodities. As per data released by the government, inflation based on the wholesale price index (WPI) surged 4.78% from the previous month’s annual rise of 1.34%. The food article index within the wholesale price index rose 16.71% in November 2009. The manufacturing products index in the WPI rose an annual 3.99%. In its October policy review, the Reserve Bank of India (RBI) had raised its WPI inflation projection for end-March 2010 to 6.5% with an upside bias, from 5% earlier.

On Sunday, 13 December 2009, the chairman of the empowered committee of state finance ministers Asim Dasgupta said that the goods and services tax (GST) regime would have four slabs and it is likely to be unveiled within 15 days. GST slabs would include exempted items list, one standard rate for majority of the goods and services and another having a moderate rate, he said. The implementation of GST is scheduled for 1 April 2010. However, there are doubts prevailing at various quarters on whether the new tax regime would come into effect at the targeted date because of differences of opinion over the rates among States and the items to be included under GST. The Committee had released a discussion paper on GST on 10 November 2009. It proposes to replace Central levies like excise duty, service tax, special additional duty and countervailing duty by GST. State levies like VAT, sales tax and entry tax would also be subsumed. Besides all this, Central and State cesses and surcharges would also be out once GST comes into effect.

Meanwhile, the RBI has reportedly expressed its concerns over many investment companies with a low capital base raising disproportionately high funds. As per the current norms, corporate investment firms, which hold strategic stakes of group companies, are exempt from following the stringent norms applicable to NBFCs. The RBI may impose regulatory restrictions on such investment arms having high leverage as a measure to limit the aggressive borrowing by corporate houses. Currently, the RBI is reported to be in discussions with some corporate groups on this issue.

During the day, Asia’s key benchmark indices in China, Hong Kong, Taiwan, South Korea and Singapore rose by between 0.31%-1.71% after Dubai said that it had received $10 billion from Abu Dhabi to help it repay $4.1 billion to meet its liabilities towards a maturing Islamic bond. However, in Japan and Indonesia, key indices were down by between 0.02%-0.72%.

Dubai said that it had received $10 billion from fellow UAE emirate Abu Dhabi to help it repay $4.1 billion in Islamic bonds maturing on Monday. The statement said the excess amount would be used to cater to Dubai World’s needs, until the end of April 2010. Sheikh Ahmed bin Saaed al-Maktoum said in a statement that Dubai wanted to reassure investors, financial & trade creditors, employees and citizens that its government would act at all times in accordance with market principles and internationally accepted business practices. He also said that Dubai is—and will continue to be—a strong and vibrant global financial centre and that the emirate’s best days were yet to come. The statement also said that the United Arab Emirates’ Central Bank, which governs monetary policy in Dubai, Abu Dhabi and other UAE constituents, is also prepared to provide support to local UAE banks.
On Friday, 11 December 2009, the Dow Jones Industrial Average rose 66 points while the S&P 500 was up 4 points while the Nasdaq Composite was down 1%.

The US Federal Reserve is expected to maintain its pledge to keep US interest rates close to zero for “an extended period” after chairman Ben Bernanke warned that US economic recovery still faced “formidable headwinds”, such as tight credit conditions and rising unemployment. Mr Bernanke’s re-appointment as chairman of the Federal Reserve by the Senate banking committee is expected on Thursday.

US industrial production during November, the figures for which are due on Tuesday, is expected to rise 0.5%. This would slow the year-on-year decline from (-) 7.1% in October to (-) 5.4%. US producer prices are expected to show the headline measure returning to positive territory for the first time in a year, with the year-on-year rate rising from (-) 1.9% in October to a rise of 1.6%. US consumer price inflation is also likely to move into positive territory for the first time since February 2009, with the headline measure expected to rise from (-) 0.2% in October to a rise of 1.8%. Core inflation, though, remains low and could sink below 1% next year following a sharp slowdown in labour costs.

In premarket trading, the Dow was trading 56 points higher.