Sensex, Nifty will struggle to sustain gains in week ahead

Moneycontrol Bureau

Indian equities may struggle to sustain the gains of the last two sessions, as macro concerns could prompt investors to book profits at higher levels instead of buying more. Late Thursday, the European Central Bank approved an ‘unlimited’ bond-purchase programme to lower the borrowing costs of trouble Eurozone member countries. 

Also read: Bullish Anand Tandon says market may touch 5600 by Dec

The commonly-held view is that a sizeable chunk of the resulting liquidity with banks will find their way into riskier assets like commodities and emerging market equities.

Indian shares surged on Friday and then added to their gains in Saturday’s special session. However, it will not be easy to equities to hold on to the gains in face of growing concerns about the economy, corporate earnings and the government’s ability (or the lack of it) to push through key reforms. Also, there are concerns that the easy liquidity in world markets will drive up prices of crude and gold, further worsening India’s current account deficit.

This is what UBS has to say about the overall mood among corporates:

"We hosted senior management of 70 plus companies in meetings with 225 plus investors at UBS’s 8th Annual UBS India CEO/CFO forum. Most corporates appear to have turned more cautious than earlier and qualified their outlook with 'subject to policy environment and macro outlook'. This is in stark contrast to earlier periods when corporates exuded confidence on growth ‘despite Government’ – not a healthy sign and reinforces our bearish view.

Bank of America Merrill on why the ECB means little for India:

“There is no change to our view that the economy will continue to be weak as the capex cycle continues to be weak. We believe the current weakness in the economy (and consequently earnings) will only be reversed if the Government takes measures to improve business confidence and boost infrastructure investments. We think earnings for FY13 are likely to grow in single digits and will probably still see some  (earnings) downgrades.