D-street cautious ahead of September quarter earnings

Second quarter earnings of companies, starting with the Infosys results, export-import numbers and industrial production data, could keep markets volatile in the week ahead. 

Analysts said foreign institutional purchases into Indian stocks may resume on hopes the US Federal Reserve’s monetary stimulus programme, known as Quantitative Easing (QE)3, stay for some more time and strength in the rupee against the dollar in the wake of the US shutdown. 

However, gains could be capped as investors might seek to book profits after recent upsides.

Corporate earnings numbers for the September quarter are expected to be weak across sectors, except that of information technology (IT), healthcare and any company with earnings in dollars.

“Market is aware that corporate earnings would be weak for the September quarter. There could be some volatility as the markets had climbed quite significantly in the run-up to the corporate announcements starting next week,” said Gopal Agrawal, chief investment officer and head of equity, Mirae Asset Global Investments.

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The result season among the index stocks would be start with the Infosys' earnings, due on Friday. A heavily-bet Infosys could see large volume pick-up but very little price volatility, said analysts.

Last week, the stock largely remained flat and ended the week up by 0.3 per cent at Rs 3,015.45 a share. However, large volume trades were seen with delivery volumes as high as 85 per cent, said analysts.

“The emotional build-up in the stock is very high, with a large number of buyers and sellers. In the run-up to the result, volatility would be low but volumes are expected to be high. Significant price movement is expected only if the results spring a negative or positive surprise on the market,” said Sandeep Singal, co-head of institutional equities at Emkay Global Financial Services. 

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Analysts said sectors such as IT, pharma and, to some extent, fast-moving consumer goods (FMCG) stocks are expected to outperform in the days ahead, companies in rate-sensitive sectors such as banking, realty and capital goods would continue to underperform.

The only exception would be the automobile sector, as it is expected to benefit from the good monsoon and pick-up in rural demand, said analysts. Some market players said a certain sense of complacency has descended onto the market. 

“Technical momentum indicates that there is still room for upside. But on the macro-economic front, things have not improved greatly and markets would be volatile, with trades on the long-side,” said Mehraboon Jamshed Irani, principal and head – private clients group, Nirmal Bang Securities. “The markets have started thinking the worst is behind with the US shutdown resulting in a possible deferment in the US Federal Reserve’s QE3 programme,” he added. 

Flows into Indian markets are likely to continue till October 17, said participants, when the US is expected to take a decision on its debt ceiling.

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Foreign institutional investors were net buyers at the end of last week, at Rs 1,096 crore (Rs 10.96 bilion), while domestic institutions were net sellers at Rs 579 crore. 

As far as the export-import numbers and industrial production data are concerned, marketmen are expecting the numbers to be in line with expectation. 

Any deviation from this could see further volatility. These numbers, analysts said, would be viewed in relation to the Reserve Bank of India (RBI) policy review  at the end of this month.

“Good IIP (index of industrial production) numbers would see the markets move up but amidst fears of a rate hike by RBI. On the other hand, weak IIP numbers could disappoint markets but provide relief, as RBI may not look at a rate-hike then,” said Irani.  The BSE Sensex gained about one per cent through the last week and closed at 19,915. 

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The NSE Nifty ended the day at 5,907, up 1.2 per cent from last week. The week ahead could see the Nifty trading in the range of 5,700-5,950. 

Technical analysts said there could be conditional buying. That is, if the Nifty crosses the 5,950 levels, the index could touch 6,150 levels. A fall below 5,950 levels could see the Nifty touching lows of 5,700.

This, technical analysts said, was based on a ‘failure’ of the pattern formed by the Nifty.

“Overtime, the success ratio of the traditional patterns formed by the Nifty has come down to 40 per cent. In which case, we are betting on the failure of the pattern to predict the movement of the index,” said Shubham Agrawal, vice-president and senior analyst technical – equities, Motilal Oswal Financial Services.