India market weekahead: Consolidation seen, earnings in focus

By Ambareesh Baliga
October 14, 2012

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

October has been touted as a difficult month for stocks, though for the Indian markets there didn’t seem to be anything stopping the repeat show of October 2011 until the flash crash on 5th.

Since then, the market has been hovering in the Nifty range of 5,650 to 5,740, closing the week about 1.23 percent lower at 5,676, breaking a five-week winning streak.

We lost some steam, but the tone is still optimistic. This could be the much-awaited correction after a near-600 point dream run.

Euro zone worries continued, with gloomy forecasts from the International Monetary Fund, but there were positive indications that countries might get more time to address their debt problems.

The S&P’s decision to cut Spain’s credit rating to a notch above junk, and refusal of the Spanish prime minister to seek a full bailout led to pressure on markets. Late on Friday, China surprised markets with exports in September growing 9.9 percent versus 2.7 percent in August, while imports grew 2.4 percent. This would mean that policy measures such as reserve ratios and an interest rate cut may not happen now. This positive data point could result in a bounce in commodity prices.

Results season started with disappointment from Infosys, pushing its stock price down 5.44 percent to close at 2,395 rupees. There is support around 2,200 rupees, purely on historical valuation, but with growth slowing, institutional investors might sell.

As I’ve said before, Infosys seems to have lost the plot, as well as its “bellwether” status; the results did not pull down IT stocks except for Wipro, and only to a small extent.

The three private-sector banks, IndusInd, HDFC Bank and DCB, reported stellar numbers, and it remains to be seen whether we’ll see such a stark contrast again between the private and public sector players in banking.

TTK Prestige, a recent consumption theme favourite, failed to live up to expectations, thus cracking 10 percent in a day.

Reliance Industries is expected to announce its results on Oct 15 after the market closes. The consensus points towards uninspiring results, but Petrochem margins likely bottomed out last quarter, and the refining margins probably will hold. That could prove to be a positive surprise.

HCL Technologies results are expected to come out on Oct 17, while big cement companies Ambuja and ACC are scheduled to announce their results on Oct 18. TCS and ITC come out on Oct 19, followed by Bajaj Auto on Oct 20, along with Ultratech Cement.

A few new model launches are expected from Honda, Maruti and Mahindra before the festival season in a bid to reverse a slowdown last month when car sales were down 5 percent.

The political drama continues with anti-corruption activist turned politician Arvind Kejriwal pulling out a new expose every few days. After allegations that Robert Vadra, son-in-law of Congress party chief Sonia Gandhi, got in to shady land deals with real estate firm DLF, Kejriwal turned his attention to Law Minister Salman Khurshid. Whether they have any effect on markets is hard to say, especially because one scandal too many could dilute their effectiveness on public sentiment.

In the meanwhile, it has taken the heat off the Coalgate scam, while DLF shares fell 9.5 percent last week.

The UPA coalition government kept up its series of investment-friendly announcements despite political opposition. One would be a National Investment Board that would fast-track a big infrastructure projects. Meanwhile, a government committee said that the attempts to collect back taxes on some companies should occur only in exceptional cases. That could make outside companies feel more secure about investing in India.

International oil prices bounced back during the week before correcting on Friday when International Energy Agency forecast higher supplies vis-à-vis lower oil consumption. The fear of tension between Turkey and Syria likely will weigh on oil prices for several weeks.

The rupee fell about 2 percent to close at 52.92 per U.S. dollar. IIP data released on Friday sprang a surprise, with 2.7 percent growth in August, but the S&P’s downgrade warning depressed markets.

The trade deficit ballooned to $18.80 billion. When the RBI speaks on Oct 30, I expect a 50-basis points cut in repo rates as the government has more than fulfilled its obligation towards policy action. Inflation data to be released on Oct 15 could be one of the pointers towards expectations from the RBI.

The recent fracas between China and Japan and the subsequent business backlash could be a blessing for countries such as Thailand, Vietnam, the Philippines and Myanmar, but India could be the biggest beneficiary. Watch this development closely because it could change the face of the Indian economy.

The Nifty is expected to consolidate between 5,600-5,800 before breaking out towards the end of the month with continued FII flows. The results season will have a stock-specific impact and it will be a stock picker’s market with  mid-caps outperforming. The breakout could be triggered by the RBI action, which should take Nifty to 6,000-plus during the festival season in November.

 

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/