D-Street in July: Spotlight shifts to earnings, macro cues

Moneycontrol Bureau

It was a bumpy ride for Dalal Street traders on Friday, as concerns of global growth restricted Indian benchmarks from recording further gains. Action from a trio of central banks yesterday, though welcome, increased worries that the world economy is in worse shape than it appears.

The Sensex and Nifty kick started the day with a negative bias on the back of weak cues from global and Asian markets. The downtrend persisted till the end of trade, pulling the Nifty down 10 points to 5,316. The Sensex, meanwhile, skid 17 points to 17,521.

For the week, the indices gained a mere 0.7%, a sign that the consolidation phase has kicked in post the fireworks last Friday.

CLICK HERE to catch up on today's trading action with Anisha Mappat..

According to Jagdish Malkani, member of the NSE and BSE, today’s fall was due to the lack of an LTRO announcement from the ECB yesterday. Markets were crossing their fingers from another round of ECB action via long term refinance operations, and the absence of this put-off the markets a bit.

However, he believes the spotlight is going to shift to domestic factors, mainly earnings season and macro economic data like inflation and the IIP number.

This view is echoed by other experts on the street as well. Amisha Vora, joint MD at Prabhudas Lilladher, believes more volatility is on the cards as we head further in July. “By the end of this month, if we see concrete action in terms of reigning in the fiscal deficit and action on cutting the fuel subsidy, it may help us go to 5,400-5,450,” she said.

For the short-term, however, today’s trade doesn’t give much hope of further gains. Sudarshan Sukhani of s2analytics.com takes today’s trade as a sign that we are possibly headed into correction. “I would be very cautious going into next week because 5,400 is a very strong resistance,” he said.

Therefore, he says traders should exit positions and wait on the sidelines for the next couple of days.

Earnings Season – Will India Inc Deliver?

Due to the adverse economic conditions in the first quarter of FY13, the street does not hold high hopes for any positive surprises from India Inc this earnings season. Infact, Vora says some companies may not be in a position to meet expectations because of a not-so-encouraging demand environment. “But, whether stocks correct big time in a time of falling currency and otherwise weakening growth is a question mark,” she said.

Jyotivardhan Jaipuria of BofA Merrill Lynch is also of the same view. He expects earnings growth to come under 10%, due to which he sees analysts’ cut forecasts by 2-3%. “Our forecast is for this quarter sales growth at 16% is the slowest in ten quarters,” he added.

On the bright side, they both believe investors are well prepared for the turbulence earnings season will bring with it.

Anisha Mappat
anisha.mappat@network18online.com