Indian Markets Show Confidence
By Guneet Singh Sahni
Emerging Markets Asia:
India Equity Market Briefing
The Indian market bounced back with a vengeance in the last two days of last week, with the Sensex gaining more than 1,000 points during that period. The move was supported by frenzied buying of battered financial stocks and short covering after four straight days of catastrophic fall.
Banking stocks that had been hammered over the last few weeks, found support in the last two days. Lower than expected inflation data, a 10% decline in the price of oil and market confidence in the ruling UPA government's ability to withstand this week's trust vote, provided the much needed impetus to decouple the Sensex from its Asian peers. Short covering was also evident in the last two days of rally, which saw a sudden reversal in the Foreign Institutional Investors (FII) trend.
WPI remains at 13-year high
The Wholesale Price Index (WPI) for the week ended 5th July, 2008, increased by 11.91% Y/Y, against the market expectation of 12.05%. This pleasant surprise came from slow growth in the Primary Article Price Index, which increased by 9.92%, against 10.84% the previous week. Manufactured Products were up 10.8%, while the Fuel Price Index was up 16.9%. Though the prices of primary articles have gone down, which would seem to be a positive sign, we believe that this is a short-lived respite. We say this because of our view that below-average monsoon activity will show impact on food crops and other non-food items. The Indian Meteorological Department measured rainfall for the week ending 16th July at 19% below normal. Therefore the present lower-than-expected inflation figure cannot be taken as a sign of inflation petering out. Also, steel prices, which have been kept artificially low by government intervention, are expected to increase to offset high input cost. In our article last week, "Asian Growth Engines Face Challenges and Stiff Inflation," we mentioned that the RBI expects inflation to touch 13%.
Foreign Institutional Investors remain net sellers
Short covering was witnessed in the last two days of the week, which was evident from a sudden trend reversal of FII. FIIs have sold shares worth Rs 2,235.70 crore so far in the month of July. They have sold shares worth Rs 27,701 crore for the calendar year 2008. Mutual funds have bought shares worth Rs 522.90 crore in the month of July. Consequently, the severe fall in the market since January has proven once again that the Indian market is FII driven and the domestic funds and household savings have a long way to go to support the market on their own. We believe that the Indian market has slowed down to a more sustainable level than earlier this year, not to say it could not be pulled down further by this trend of decline in capital flows and rising commodity prices.
Markets Ahead
The coming week is going to be very crucial for the Indian market as India’s largest private company, Reliance Industries (NSE: RELIANCE.NS), which constitutes a 16% weight in the Sensex, reports its quarterly results. Also, the government will have to prove its majority on the floor of the Parliament. Earnings season has so far shown Indian corporate balance sheets at strained levels, facing severe pressure from forex losses and high commodity prices. The positive factor remains that year-on-year revenue growth continues to be robust, which indicates that demand for goods and services have not been affected so far. The IT sector was battered last week, on account of a weak demand outlook for fiscal 2008. This is because banks in the U.S. delayed orders to manage computer networks as they grapple with the collapse of the subprime mortgage market.
Market activity for the following week includes:
Monday
Monday starts with the normal trickling of April-June quarterly results from Maruti Suzuki India (Bombay: 532500.BO), Dr Reddy’s Laboratories (NYSE:RDY), Steel Authority of India (NSE: SAIL.NS), Tech Mahindra (NSE: TECHM.NS), Bharat Heavy Electricals, Canara Bank (NSE: CANBK.NS) and Housing Development and Infrastructure (NSE: HDIL.NS).
Tuesday – Where will the magic number come from?
The political frenzy reached its utmost peak with the largest democracy in the world going in for a no trust motion, where the ruling UPA government had to prove its majority. In a 542 effective strength parliament, the ruling UPA needed a majority of 271 members to remain in power. Up until the time of writing this report, a leading India based news channel claimed that the ruling alliances had garnered support of 262 members and the opposition numbers stacked up to 268 members. It would be a last minute thriller, as the vote of 12 undecided members were to determine the fate of the markets, and the government. The market expected the government to survive, and it did. On the flip side, if the government failed to prove its majority, there would likely have been a free fall in the market.
The market has rallied on the UPA government's survival, which in effect is expected to bring reforms in the banking and insurance sector. The day also saw quarterly results from Asian Paints (NSE: ASIANPAIN.NS), IDBI Bank (Bombay: 500116.BO) and Siemens (NYSE: SI).
Wednesday
Wednesday’s earning schedule includes Patni Computer Systems (NYSE:PTI), Shree Renuka Sugars (NSE: RENUKA.NS) and Zee Entertainment Enterprises (Bombay: 505537.BO). Patni Computer’s results will complete the last leg of earnings for major IT companies. India’s largest IT companies – TCS (NSE: TCS.NS), Infosys (Nasdaq:INFY), Wipro (NYSE:WIT) and Satyam (NYSE:SAY) have already announced their results. Infosys' net income climbed 21% Y/Y to $303 million, and net profit climbed 35% Y/Y, in line with the expectations. Wipro and Satyam outperformed their larger peers on higher profit and revenue growth rates that were aided by higher realizations and a depreciating rupee. However, both these stocks took a beating on their weak forecasts for demand from overseas customers. Wipro Ltd., India's third-largest software-services provider, whose clients include General Motors (NYSE: GM), Microsoft (Nasdaq: MSFT) and Cisco Systems (Nasdaq: CSCO), slumped after reporting lower-than-estimated earnings growth of 25% Y/Y, as international customers scaled back orders. In my view, the market did not receive any positive cues from the guidance of IT companies. Watch out for our exclusive post earnings IT sector analysis this coming week.
Thursday
Market heavyweights Reliance Industries and Bharti Airtel (Bombay: 532454.BO) will come out with their results on Thursday. Reliance's results will be a key factor to watch, as it is a trend setter in the market. Other reports include ACC, Idea Cellular (NSE: IDEA.NS) and Zee News (NSE: ZEENEWS.NS). WPI Inflation data will be reported at 5:00 PM Indian Standard Time.
Friday
Earnings are due from Hindustan Unilever (NSE: HINDLEV_a.NS), Reliance Power (NSE: RPOWER.NS), Tata Power (NSE: TATAPOWER.NS), ABB Ambuja Cements, Grasim Industries (NSE: GRASIM.NS), and Union Bank of India (NSE: UNIONBANK.NS).
See our "Asian Markets Briefing," in case you missed it.
Full Disclosure: Mr. Sahni holds 10 shares of Infosys, 5 shares of Bharti Airtel and 21 shares of reliance power.
Article interests AMEX: DIA, AMEX: SPY, AMEX: DOG, AMEX: SDS, AMEX: QLD, Nasdaq: QQQQ, NYSE: NYX, Nasdaq: ASIA, Nasdaq: PRASX, AMEX: PUA, AMEX: NWD, Nasdaq: MEAFX, Nasdaq: EBASX, Nasdaq: EVASX, Nasdaq: MACSX, Nasdaq: MATFX, AMEX: CZJ. Please see our disclosure at the Wall Street Greek website.
Emerging Markets Asia:
India Equity Market Briefing
The Indian market bounced back with a vengeance in the last two days of last week, with the Sensex gaining more than 1,000 points during that period. The move was supported by frenzied buying of battered financial stocks and short covering after four straight days of catastrophic fall.
Banking stocks that had been hammered over the last few weeks, found support in the last two days. Lower than expected inflation data, a 10% decline in the price of oil and market confidence in the ruling UPA government's ability to withstand this week's trust vote, provided the much needed impetus to decouple the Sensex from its Asian peers. Short covering was also evident in the last two days of rally, which saw a sudden reversal in the Foreign Institutional Investors (FII) trend.
WPI remains at 13-year high
The Wholesale Price Index (WPI) for the week ended 5th July, 2008, increased by 11.91% Y/Y, against the market expectation of 12.05%. This pleasant surprise came from slow growth in the Primary Article Price Index, which increased by 9.92%, against 10.84% the previous week. Manufactured Products were up 10.8%, while the Fuel Price Index was up 16.9%. Though the prices of primary articles have gone down, which would seem to be a positive sign, we believe that this is a short-lived respite. We say this because of our view that below-average monsoon activity will show impact on food crops and other non-food items. The Indian Meteorological Department measured rainfall for the week ending 16th July at 19% below normal. Therefore the present lower-than-expected inflation figure cannot be taken as a sign of inflation petering out. Also, steel prices, which have been kept artificially low by government intervention, are expected to increase to offset high input cost. In our article last week, "Asian Growth Engines Face Challenges and Stiff Inflation," we mentioned that the RBI expects inflation to touch 13%.
Foreign Institutional Investors remain net sellers
Short covering was witnessed in the last two days of the week, which was evident from a sudden trend reversal of FII. FIIs have sold shares worth Rs 2,235.70 crore so far in the month of July. They have sold shares worth Rs 27,701 crore for the calendar year 2008. Mutual funds have bought shares worth Rs 522.90 crore in the month of July. Consequently, the severe fall in the market since January has proven once again that the Indian market is FII driven and the domestic funds and household savings have a long way to go to support the market on their own. We believe that the Indian market has slowed down to a more sustainable level than earlier this year, not to say it could not be pulled down further by this trend of decline in capital flows and rising commodity prices.
Markets Ahead
The coming week is going to be very crucial for the Indian market as India’s largest private company, Reliance Industries (NSE: RELIANCE.NS), which constitutes a 16% weight in the Sensex, reports its quarterly results. Also, the government will have to prove its majority on the floor of the Parliament. Earnings season has so far shown Indian corporate balance sheets at strained levels, facing severe pressure from forex losses and high commodity prices. The positive factor remains that year-on-year revenue growth continues to be robust, which indicates that demand for goods and services have not been affected so far. The IT sector was battered last week, on account of a weak demand outlook for fiscal 2008. This is because banks in the U.S. delayed orders to manage computer networks as they grapple with the collapse of the subprime mortgage market.
Market activity for the following week includes:
Monday
Monday starts with the normal trickling of April-June quarterly results from Maruti Suzuki India (Bombay: 532500.BO), Dr Reddy’s Laboratories (NYSE:RDY), Steel Authority of India (NSE: SAIL.NS), Tech Mahindra (NSE: TECHM.NS), Bharat Heavy Electricals, Canara Bank (NSE: CANBK.NS) and Housing Development and Infrastructure (NSE: HDIL.NS).
Tuesday – Where will the magic number come from?
The political frenzy reached its utmost peak with the largest democracy in the world going in for a no trust motion, where the ruling UPA government had to prove its majority. In a 542 effective strength parliament, the ruling UPA needed a majority of 271 members to remain in power. Up until the time of writing this report, a leading India based news channel claimed that the ruling alliances had garnered support of 262 members and the opposition numbers stacked up to 268 members. It would be a last minute thriller, as the vote of 12 undecided members were to determine the fate of the markets, and the government. The market expected the government to survive, and it did. On the flip side, if the government failed to prove its majority, there would likely have been a free fall in the market.
The market has rallied on the UPA government's survival, which in effect is expected to bring reforms in the banking and insurance sector. The day also saw quarterly results from Asian Paints (NSE: ASIANPAIN.NS), IDBI Bank (Bombay: 500116.BO) and Siemens (NYSE: SI).
Wednesday
Wednesday’s earning schedule includes Patni Computer Systems (NYSE:PTI), Shree Renuka Sugars (NSE: RENUKA.NS) and Zee Entertainment Enterprises (Bombay: 505537.BO). Patni Computer’s results will complete the last leg of earnings for major IT companies. India’s largest IT companies – TCS (NSE: TCS.NS), Infosys (Nasdaq:INFY), Wipro (NYSE:WIT) and Satyam (NYSE:SAY) have already announced their results. Infosys' net income climbed 21% Y/Y to $303 million, and net profit climbed 35% Y/Y, in line with the expectations. Wipro and Satyam outperformed their larger peers on higher profit and revenue growth rates that were aided by higher realizations and a depreciating rupee. However, both these stocks took a beating on their weak forecasts for demand from overseas customers. Wipro Ltd., India's third-largest software-services provider, whose clients include General Motors (NYSE: GM), Microsoft (Nasdaq: MSFT) and Cisco Systems (Nasdaq: CSCO), slumped after reporting lower-than-estimated earnings growth of 25% Y/Y, as international customers scaled back orders. In my view, the market did not receive any positive cues from the guidance of IT companies. Watch out for our exclusive post earnings IT sector analysis this coming week.
Thursday
Market heavyweights Reliance Industries and Bharti Airtel (Bombay: 532454.BO) will come out with their results on Thursday. Reliance's results will be a key factor to watch, as it is a trend setter in the market. Other reports include ACC, Idea Cellular (NSE: IDEA.NS) and Zee News (NSE: ZEENEWS.NS). WPI Inflation data will be reported at 5:00 PM Indian Standard Time.
Friday
Earnings are due from Hindustan Unilever (NSE: HINDLEV_a.NS), Reliance Power (NSE: RPOWER.NS), Tata Power (NSE: TATAPOWER.NS), ABB Ambuja Cements, Grasim Industries (NSE: GRASIM.NS), and Union Bank of India (NSE: UNIONBANK.NS).
See our "Asian Markets Briefing," in case you missed it.
Full Disclosure: Mr. Sahni holds 10 shares of Infosys, 5 shares of Bharti Airtel and 21 shares of reliance power.
Article interests AMEX: DIA, AMEX: SPY, AMEX: DOG, AMEX: SDS, AMEX: QLD, Nasdaq: QQQQ, NYSE: NYX, Nasdaq: ASIA, Nasdaq: PRASX, AMEX: PUA, AMEX: NWD, Nasdaq: MEAFX, Nasdaq: EBASX, Nasdaq: EVASX, Nasdaq: MACSX, Nasdaq: MATFX, AMEX: CZJ. Please see our disclosure at the Wall Street Greek website.
posted by The Greek | 2:00 PM
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