Stock: Weak earnings season, rate fears may weigh on D-St

SIVASIVA (FCA, Future CA) (4935 Points)

18 April 2011

Weak earnings season, rate fears may weigh on D-St

MUMBAI: Lacklustre Infosys results and rising inflation and possibilities of further rate hikes will weigh heavy on the minds of investors when the market opens for trading on Monday.

Equity analysts expect the market to re-main choppy since much will depend on the fourth quarter earnings of frontline companies. Infosys reported a dip in earnings before interest, tax for the fourth quarter of 2010-11 on a sequential basis, and two of its senior executives - Mohandas Pai and K Dinesh - said they were quitting the firm amid rumours of dissent at the top. The stock price ended around 10% lower on Friday.

Inflation data released on Friday showed a rise, with the index at 8.98% in March from 8.31% the month before due to a sharp rise in fuel and manufactured prices, way above the target of 8% set by the Reserve Bank of India only last month against its initial March 2011 projection of 5.5%. The stock market may see a cautious opening, after a disappointing start of the earnings season and rate hike looking large.

Positive closing of US markets on Friday may provide support to the Indian market. "We think the inflation reading calls for a strong rate action , we expect the RBI to balance (softening) growth and (high) inflation by continuing with its calibrated approach. We are penciling in another 50 bps hike in both repo and reverse repo rates in 2011, including a 25-bps hike in the 3 May meeting," said Sonal Verma and Ketaki Sharma of Nomura Financial Advisory and Securities.

Consensus estimates suggest that banks and automobile companies are likely to lead profit growth in the fourth quarter of the just-concluded financial year 2010-11 while telecom and real estate firms may be the primary laggards. "In overall terms, corporates, excluding oil marketing companies , are likely to report an 18-19 % growth this quarter.

Banks are likely to post a 30-40 % growth in net profit, led by State Bank of India , ICICI Bank , and HDFC Bank ," said Manish Sonthalia, senior vice-president, Motilal Oswal Securities. High oil prices and rising interest rates with headline inflation above 8% will remain key concerns for corporate earnings in FY12, said analysts.

The 30-share Sens*x slipped a tad last week to close at 19386.82 points, down 310.05 points, or 1.57%, on Friday. Broader benchmark Nifty also ended the week on a lacklustre note, closing almost unchanged at 5842.55 points Friday. The Street would be looking forward to the fourth quarter results of key companies.

Other than HDFC Bank, some of the other companies that will be coming out with the results include IndusInd Bank , IFCI , Magma Fincorp and Persistent Systems . "Inflationary pressures are getting magnified due to surge in oil, commodities & food prices and tight labour market, along with supply constraints that emerging markets typically face at this stage of their economic cycle. This will weigh down on the corporate earnings," says a chief investment officer of an insurance company promoted by a large corporate house.

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Stock markets to be range bound this week: Analysts

NEW DELHI: The stock markets are likely to be range bound this week and may see investors booking profits as IT major Infosys Technologies' fourth quarter results and earning guidance failed to meet Dalal Streets' expectations.

The Bombay Stock Exchange key index Sens*x fell by 64.63 points, or 0.33 per cent, in the week gone by, to settle at 19,386.82 in the previous trading session.

According to analysts, stock market will see profit booking by the jittery investors as Infosys delivered a below-expectation fourth quarter numbers and revenue guidance.

"Market is likely to be range bound this week. Monday will see impact of Infosys numbers which were lower than expected. Bulls will take a backseat during this week and investors will bear a cautious approach," Ashika Stock Broking Research Head Paras Bothra said.

Infosys had on Friday reported a 13.62 per cent jump in net profit at1,818 crore for the fourth quarter ended March 31, 2011. It reported a revenue of7,250 crore for the quarter.

The company expects revenue in the range of7,311-7,382 crore for the quarter ending June 30, 2011, and in the range of31,727-32,270 crore for FY12.

Market experts also said that the overall market has turned a little volatile after the late March rally, which was sparked by robust FII inflows.

"The overseas inflows have slowed lately even as concerns prevail over earnings prospects amid high inflation. Globally too, a few problems persist. As a result, one should tread cautiously in the near term and wait for further clarity," IIFL Head of Research (India Private Clients) Amar Ambani said.

"Monday would see some selling pressure in the Infosys stock which will in-turn dampen the overall market sentiment. The quarterly numbers of domestic companies will dominate the global events this week," Geojit BNP Paribas Financial Services Research Head Alex Mathews said.

HDFC Bank and IndusInd Bank results on Monday are likely to influence the market sentiments, a market player added.