Mumbai: With information technology major Infosys Technologies Ltd scheduled to kickstart the quarterly results season next week, analysts feel corporate earnings would chart out the direction for the stock market.
Earnings expectations for different sectors point towards a decent growth in profits and revenues of companies though IT space is likely to be impacted by the Rupee appreciation while the banking majors may witness a slow down in their growth due to the recent rate hikes by the central bank.
However, analysts have tempered down their negative expectations and forecast overall stronger Q4 results for corporate India in the last quarter of FY 07.
Apart from IT major Infosys, other companies that would declare their results next week include Raj Television Network Ltd, Prism Cements Ltd, i-Gate Global Solutions Ltd, Mastek Ltd, Honeywell Automation India Ltd, Ballarpur Industries LTd and CMC Ltd.
The benchmark index Sensex, which lost 216 points or 1.5% and ended at 12,856.08 point last week is expected to consolidate and investors might lap up some gains this week, a broker said.
The market is likely to witness mostly stock specific movements, driven by individual corporate earnings.
According to street expectations, the rise of rupee threatens to reduce the Q4 profits of Infosys, which would declare results on 13 April, by up to 40-60 basis points and revenue margins by anywhere between 1% to 1.5%.
However, analysts do not rule out the possibility that above expectations results from the IT heavyweight could cheer the markets considerably. In January, a good set of results from Infosys had boosted the Sensex to shore up 341.81 points in a day.
IT majors including Tata Consultancy Services, Infosys Technologies, Wipro and Satyam Computer are highly dependent on the US market with as much as 60% to 70% of their revenue coming in dollars but forex analysts point out that the real danger from rupee appreciation may actually hit margins of smaller companies.
According to an analyst from a leading research firm, higher advance tax paid by frontline companies indicate better quarterly results from the corporates. Tata Sons, TISCO, BPCL, Hindalco, UltraTech Cement and Bank of Baroda are among the companies which have paid much higher advance tax during the fourth quarter of 2006-07.
Tata Sons, the holding company of the Tata Group, has paid advance tax of Rs225 crore as on 15 March against only Rs8 crore it paid in the corresponding period last year.
Even companies, which reported zero advance taxes in the year-ago period, have paid substantial amounts like BPCL (Rs275 crore), Central Bank of India (Rs150 crore), New India Insurance (Rs159 crore) and Bank of Baroda (Rs50 crore).
The only dampener in the scene is corporate behemoth Reliance Industries Ltd which paid Rs118 crore against Rs220 crore last year and state-run Indian Oil has also paid Rs400 crore against Rs1,600 crore last year.
Besides, inflation worries could rest for awhile as India’s wholesale price index rose 6.39% in the 12 months to 24 March, lower than the previous week’s increase of 6.46%.
The only surprises that might catch investors on the wrong foot would be the the trends in global markets. Over the past few months, sentiments of local bourses have been considerably affected by global cues and any sharp correction in overseas markets might lead to the Sensex moving in a similar direction.