Earnings of key index cos to give clues on market trends

Earnings of key index cos to give clues on market trends

The rally continued on Indian bourses as foreign money poured in taking the cumulative investment of foreign institutional investors (FIIs) to an all-time high in a calendar year. Though there have been sporadic bouts of profit selling, on the whole, the undertone on the bourses remained firm and equities touched new highs after every fall. Foreign funds have pumped in $4.31 billion (Rs16,938 crore) so far this month (till Thursday) and $16.544 billion so far this year; and the Indian bourses have witnessed one of the best returns in the world. All that, though, is history. What lies ahead is a bit tricky as there are a number of factors which will now dominate markets.

Eye on earnings

Since the earnings season is now in top gear and this week is the most crucial from the earnings point of view, all eyes will be on the financial numbers of key index companies. These will largely decide where we are heading. Among the important companies, Tata Consultancy Services Ltd will report its numbers on Monday, Reliance Energy Ltd on Wednesday, Reliance Industries Ltd, ACC Ltd and Ranbaxy Laboratories Ltd on Thursday and ICICI Bank Ltd, Wipro Ltd, Bajaj Auto Ltd and Ambuja Cement Ltd on Friday. Since these numbers are from a wide variety of industries, they will provide vital clues about the likely trend on the bourses based on fundamentals.

The recent spate of cuts in interest rates by big banks is also likely to go well with the markets with more banks likely to follow suit—this is certainly a positive sign. One can say that this is probably an indication of what lies ahead in the forthcoming mid-term review of the credit policy by Reserve Bank of India, scheduled on October 30.

The markets have been hoping for a cut in interest rates and industry has been lobbying for it. A cut in interest rates will prop them up further. This may arrest rupee’s strength against the dollar, albeit temporarily.

Negative signs

However, there are some drags for the global rally. The sharp surge in crude prices to over $84 on Friday will begin to worry analysts sooner than later. As of now, the markets have factored in high oil prices. My worry is what if oil touches a new peak and hits levels around $90 a barrel—which is very much likely, and high crude prices are potentially very inflationary—this could change the economic scenario. India may not feel the pinch instantly due to a strong rupee and administered oil prices. But at some stage, it will also start reflecting on Indian economy.

This week, more than 80 companies in Standard & Poor’s 500 Index as well as hundreds of mid-sized and smaller companies will come out with their financial numbers in the US. Since the expectations from these results are low, and the profits on an average are expected to grow just about 3.2%, so any positive surprises would lead to buying. However, on the data front, information on September housing starts, due on Wednesday, will be closely watched as it may give some vital clues on the state of the US economy. Wednesday will also feature the release of the September US Consumer Price Index and the Federal Reserve’s “Beige Book" on business activity in the 12 Federal Reserve Bank districts.

Local technicals

Back home, the Sensex is likely to witness its first resistance level at 18,786, followed by 18,993, 19,188, and 19,476 points. While on the downside, there is a strong support at 17,987 points, a decisive close below this level could affect the sentiments on bourses and the Sensex may head south if it closes below this level with good volumes. The next big support for Sensex is placed at 17,578 points.

This week IVRCL Infrastructure & Projects Ltd, IFCI Ltd and HDFC Bank Ltd look good on our charts. IVRCL, at its last close of Rs499.65 has the potential to move up to Rs542 with a stop loss of Rs471. HDFC Bank, at its last close of Rs1,432.70 is in consolidation phase and can hit a target of Rs1,474 with a stop loss of Rs1,387. IFCI Ltd at its current price Rs84.80 is a good technical bet with a target of Rs93 and stop loss of Rs76. From our last week’s recommendations, 3i Infotech Ltd, recommended at Rs149, hit Rs155 but missed its first target of Rs158. The stock currently has hold recommendation with previous week’s target and resistance. While Escorts Ltd, recommended at Rs122, touched a high of Rs136 surpassing its target of Rs132.

Vipul Verma is a New Delhi-based independent investment adviser. Your questions and comments are welcome at ticker@livemint.com