India markets weekahead: Lack of adverse news enough to sustain markets

October 16, 2011

(The views expressed in this column are the author’s own and do not represent those of Reuters)

In one of the best weeks in recent times, we saw the broader indexes move up over four pct supported by positive FII statistics, better than estimated results from Infosys and lack of adverse international news flow.

The Q2 FY12 results season started on a positive note, with IT bellwether Infosys dishing out better than expected results and projecting a steep increase in rupee guidance, thanks to depreciation of the rupee. For the next 2-3 quarters, Infosys would need to be judged more by the performance of the rupee vis-à-vis IT sector performance.

Economic data released last week played its role in amplifying market volatility. Industrial output in August rose a slower-than-expected 4.1 pct from a year earlier while WPI was within expected levels of 9.72 pct in September, compared to a 9.78 pct rise in August. Inflation remains at uncomfortable levels despite 12 rounds of rate hikes. This could reconfirm the hawkish stand RBI has been taking for a long time now with another 25 bps increase in its policy review on Oct 25.

The ongoing tussle between the Maruti management and workers at its Manesar plant has resulted in the company suffering production loss of around 20,000 units, an impact of 25 pct on the company’s volumes and 10 pct on industry volumes. Maruti competitors wanting to launch models may have found this situation a blessing in disguise. Maruti has been beaten down around 8 pct for the week.

The Haryana government declaring the strike illegal by derecognising the union and subsequent eviction of striking workers could be a breather for Maruti but developments over the next few weeks need to be tracked as this could derail a slew of launches planned for 2012. Nonetheless, Maruti continues to have a strong franchise and any panic fall to 950-rupee levels should be considered as a buying opportunity.

Reliance Industries’ results were to have set the tone for the coming week but there were no surprises. The results were more or less in line with market expectations and hence the international mood which has been buoyant for a while will continue supporting our markets. Other prominent results coming out this week are HDFC, HDFC Bank, TCS, Hero Motocorp, Cairn India, Larsen & Toubro and Jet Airways.

Investors will keep a close watch on the management outlook for corporates announcing results although expectations from the current performance are too low in any case. The RBI policy review is another major event but here too, the market has discounted a 25 bps hike. Internationally, the G20 summit would be an event to watch — whether world leaders arrive at any long-term solution for economic woes. Given stiff resistance on the upside, we might need a long-term strategic solution¬†for the euro zone crisis and on the domestic front, a sustained decline in the inflation trajectory (though the high base effect will come into play by November/December) and a working government to break the range on the top.

All possible negatives have been discounted in the current prices, so the downside seems limited. Lack of negative news flow is enough to sustain the markets. Broadly, we would remain in the range of Nifty 4750 to 5250 but any downtick days are the time to accumulate. Similarly, too much optimism in specific stocks like Infosys should be utilised to cash out to some extent.

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