Notwithstanding last week’s flash crash that sent NSE’s Nifty into a tailspin, equity markets are likely to stay calm. Two of the index heavy weights – Infosys and HDFC Bank – will declare their second quarter financial performance on Friday. Ahead of these crucial numbers, marketmen may prefer to wait on the sidelines while some may even book profits after the recent run-up in share prices.
With the rupee appreciating strongly in recent weeks following the Government’s reform initiatives, Infosys’s outlook will set the direction for the stock as well as IT and broad market indices. During the previous quarter on July 12, Infosys shares crashed over 8 per cent after the software major revised downwards both earnings and revenue growth guidance for the current fiscal. The stock, which plunged to a low of almost Rs 2,100 after the result and the guidance announcement, recovered sharply to rule currently above Rs 2,500 range.
Similarly, the consistent performer HDFC Bank will set the tone for banking stocks.
Other companies that are disclosing September quarter results include IndusInd Bank (Wednesday), Sintex Industries (Thursday), Development Credit Bank, Heidelberg Cement, TTK Prestige, Hindustan Media Ventures and Polaris Financial Technology (Friday).
Another important clue will be the industrial production data. The Index for Industrial Production data for August will be disclosed on Friday by Central Statistical Office. If the index shows further moderation as widely expected, then chances of RBI cutting interest rate brighten. However, inflation numbers next week would be the more crucial data for the RBI to decide on interest rates in the Second Quarter Review of Monetary Policy on October 30.
Thanks to the flurry of recent reform measures announced by the Government and the abundant global liquidity, Indian bourses were one of the best performers in September.
“Any further sustainable rise in the markets will be led only by implementation of the reforms. The implementation of reforms is necessary to encourage more investments and help sustain the earnings and valuations at current levels,” said BNP Paribas.
Though its year-end target of 18,500 for the Sensex has been achieved, BNP Paribas said: “There is a possibility of the Sensex testing levels of 19,500 in the next 3 months, due to global liquidity.”
It, however, added that Indian markets can take a breather and can correct 18,000 and below, which could give an “entry point” for investors.
According to Deutsche Bank, investors looking to play the beta rally should increase exposure in banks, real estate and select infrastructure names and trim positions in IT Services and Pharma (on recent strong performance and expected INR appreciation). Unless the RBI does not change its hawkish stance, we believe that expectations of monetary loosening increase the risk-reward for PSU banks, it added.