Saturday, October 10, 2009

Week ahead 12-16 Oct 09

After a rally in rupee against the dollar which overshadowed an upward revision in earnings from IT bellwether Infosys on Friday, 9 October 2009, the next batch of Q2 September 2009 results will dictate trend on the domestic bourses. A set of strong results is likely to prompt another round of earnings upgrades by analysts as the economic revival story gains traction. It will also make Indian stocks look fairly valued.

However, a disappointing Q2 show may trigger correction after a solid surge on the bourses this year triggered by massive buying by foreign funds. HDFC, HDFC Bank, Axis Bank, TCS, Bajaj Auto and UltraTech Cement will unveil Q2 results next week.

Stock and sector-specific activity may dominate trade in the coming days based on expectations on Q2 September 2009 results. Auto firms are seen reporting strong Q2 results on strong volume growth and on lower input costs. Lower interest rates and pay hike for government employees has boosted auto sales this year after last year's slowdown in demand. Government employees have started receiving the balance 60% of their wage arrears as per the recommendations of the VIth Pay Commission.

Cement firms, too, are seen reporting good Q2 numbers on the back of volume growth, higher realisation and decline in costs like imported coal. Metal firms are seen reporting fall in net profit due to a sharp fall in metal prices on year-on-year basis.

Fall in volumes in the commercial property segment and lower realisations in both commercial and residential property segments, will pull earnings of realty firms lower. A sharp surge in equity markets may help treasury gains for some banks.

Strong growth in new subscriber additions will aid topline growth of telecom firms. But falling average revenue per user (ARPU) and revenue per minute due to intense competition will cap bottom line growth.

On the macro front, the key data due next week is industrial production for August 2009 on Monday, 12 October 2009. Economic growth indicators have been signalling a revival for some time now and industrial recovery is gaining momentum. For one, the HSBC Markit Purchasing Managers' Index, an indication of coming growth in the manufacturing sector, rose to 55 in September 2009, up from 53.4 a month ago. A reading above 50 indicates expansion.

Meanwhile, Indian companies are taking advantage of a surge in liquidity to recapitalize and fund capital expenditure after being starved of cash last year. Their expansion plans may help revive economic growth. Indian firms have raised about $15 billion through share sales in the past six months, encouraged by a share market that has more than doubled from a March 2009 low.

On the flip side, a likely surge in inflation due to higher food prices and a pick up in credit offtake may put an upward pressure on interest rates. A rise in interest rate may put a lid on an economic recovery.

Source : CapitalMarket