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.