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Photo: Reuters
Photo: Reuters

Earnings to drive markets even as global markets eye another stimulus bazooka

  • The earnings season kicked off on an upbeat note after IT major TCS announced robust second-quarter earnings. IT stocks would be on investors’ radar as sector heavy-weights Infosys, Wipro and HCL Technologies announce earnings
  • On the global front, updates on the US stimulus package and upcoming Presidential debates will provide support to the markets

Indian equities are entering this week in a cheerful mood, courtesy positive local and global cues. The Sensex crossed the crucial 40,000 mark and is just about 4% away from reclaiming its all-time high. But volatility could remain elevated as stocks enter higher territory.

Nevertheless, IT stocks are turning market leaders post the pandemic. The earnings season kicked off on an upbeat note after IT major TCS Ltd announced robust second-quarter earnings. IT stocks would be on investors’ radar as sector heavy-weights Infosys, Wipro and HCL Technologies Ltd announce earnings.

But banks have also been trying to play catch up. The Nifty Bank index was in the spotlight following the Reserve Bank of India’s (RBI) monetary policy meeting. Even though the central bank didn’t move on rates, dovish commentary came as a shot in the arm for banking stocks.

Bond markets also drew comfort from RBI’s additional liquidity boosting measures. Starting this week, the size of the open market operations (OMO) to buy government bonds will be increased to Rs20,000 crore. So far, auction sizes have been around Rs10,000 crore.

Besides, pre-quarterly updates from HDFC Bank and IndusInd Bank Ltd are also upbeat, but indicate that loan growth is not yet out of the woods.

On the other hand, upbeat pre-quarterly sales updates from Titan Ltd and Marico Ltd, point to a decent quarter for consumer companies. FMCG major Avenue Supermart Ltd will announce earnings on 17 October.

Key macro-economic data – September retail and wholesale inflation and August industrial production data - shows the economy is playing catch up. But inflation is also rearing its head.

According to Teresa John, economist at Nirmal Bang Securities Ltd, inflation measured via the consumer price index inflation for September is likely to edge up to 6.88% from 6.69% in August. The rise in inflation is mainly on account of higher prices of vegetables and meat and fish. She expects industrial production to decline by 8.7% year-on-year in August after a 10.4% decline in July.

The services purchasing managers’ index (PMI) showed that business activity in the sector recovered in September. However, input prices rose with survey participants pointing out increased vegetable and fuel costs.

On the global front, updates on the US stimulus package and upcoming Presidential debates will provide support to the markets. Recently Federal Reserve chairman Jerome Powell said the central bank still had many tools to manage the crisis. However, he thinks certain areas of the US economy will continue to struggle without more stimulus.

Reiterating the same, US Federal Reserve chairman Robert Kaplan said, central banks cannot solve income problems, so it is up to governments to compensate for loss of incomes through fiscal policy. Equity market sentiments across countries were buoyed by renewed hopes of a stimulus package in the US.

Moving on to the commodities market, ahead of the upcoming festive season prices of precious metals gold and silver rose again. After remaining range-bound for the most part of the week, gold and silver prices rose sharply on Friday. Gold futures on MCX rose 650 to 50,817 per 10 gram while silver futures surged 4% or 2,500 to 62,955 per kilogram on Friday.

Meanwhile, RBI has sought vacation of the Supreme Court’s stay on the classification of non-performing asset (NPA) accounts. The central bank has informed the apex court that its order staying the classification of NPA accounts will have huge implications for the banking system if it is not lifted immediately. Investors in banking stocks will be closely monitoring this development.

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