This week market may move in fits and starts. Some overseas players are taking a chance amid earnings growth and returns uncertainty. According to market intelligence, though the number of risk-takers is small in almost a dry market, they may lend immediate influence on the sentiment through their actions in any given session or even during a part of the session.
Daily and weekly direction of the key indices, thus, could be misleading for the time being.
Operators also appear unusually cautious in apprehension of downside surprises in Q1 earnings. The market mood is not of taking an overall call but of reacting to each corporate action or result. Insiders say that the local money seems largely frozen on the sidelines and may not show signs of being proactive any time soon.
Except for the auto sector, which is likely to buck a downbeat profit trend, earnings outlook remains hazy for other sector players.
It is not surprising that many long-term investors are not willing to spread their risk now through fresh investments. Churning of portfolios may remain the flavour in the short-term, money managers say.
In terms of ratings, from a clear underweight, Indian equities may find more and more “neutral” slots in the next few weeks if the earning reports do not torpedo the estimates.
According to strategists, global liquidity remains quite tight at this point in time. It is also clear that if foreign investors' concerns over India's bad macro-economic picture and lack of governance are not reduced substantially, an upward momentum cannot be created on Dalal Street.
Deutsche Bank, for example, says in a note on the weekend that in order to gauge the overall trend in non-farm sector growth momentum, it has constructed a composite PMI index by combining the monthly readings of manufacturing and services PMI.
“The composite PMI shows an improvement in June over May (55.9 versus 55.5), thanks to the improvement in the services PMI outturn and the relative higher weight of the sector in the index. The long-term trend in composite PMI shows a slight dip in the Apr-June average compared to Jan-March period (56.8 vs. 58.7), but the drop is not significant enough to suggest any sharp deceleration in non-farm growth momentum.”
It foresaw also June WPI inflation to touch 10 per cent, up from 9.1 per cent in May. “Thereafter, we see WPI inflation remaining high and sticky in 10-10.5 per cent range through the next few months, probably peaking out by August and then easing modestly by the end of December to 8-8.5 per cent levels. Given this inflation outlook, we expect RBI to hike the repo rate by 25 basis points in its next monetary policy meeting on 26 July.”
It assesses, like many others, that the fiscal outlook worsened in recent months due to risks of potential shortfall in tax collection, disinvestment target and higher expenditure related to fuel subsidies.
“Even assuming that direct tax and disinvestment targets will be met, our calculation suggests that the fiscal deficit could worsen to 5.5 per cent of GDP in FY11/12 (as against the budget estimate of 4.6 per cent of GDP), solely on account of petroleum subsidy related complications (revenue loss amounting to 0.4 per cent of GDP due to duty cuts and additional expenditure on fuel subsidies worth 0.5 per cent of GDP).”