Market may edge lower on weak Asian stocks

Weak in global markets may trigger profit taking on the domestic bourses which have seen a sharp surge in the past few days. Indian stocks have risen sharply in the past few days as a part of a solid rally in global stocks triggered by hopes the worst of the global economic recession may be over. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex jumped 2,374.47 points or 29.09% to 10,534.87 on 6 April 2009, its highest closing since 10 November 2008. The stock market was closed on Tuesday, 7 April 2009, for a public holiday.

According to analysts a recovery in the economy will make the rally sustainable. Indian manufacturing activity contracted for a fifth straight month in March 2009 as demand remained depressed by the global economic downturn, although there were some signs of improvement, a survey showed on 1 April 2009. The new orders index rose to 49.5 in March 2009 from 45.9 in February 2009.

However, as per the provisional data released by the commerce department on Tuesday, 7 April 2009, exports declined for a sixth month in a row in March 2009. Quick estimates made by the commerce department reveal that exports fell by 18% in March 2009 to $12 billion. With demand in key markets including the US, the European Union and Japan slowing down, exports in most countries have been hit.

The Q4 March 2009 results of India Inc would start trickling in soon and investors will close watch the future outlook provided by the management. IT bellwether Infosys Technologies kickstarts the earnings reporting season on 15 April 2009.

One domestic brokerage expects core earnings of 30-Sensex firms to decline 12% in Q4 March 2009 over Q4 March 2008. The decline in earnings may be more widespread than in the previous quarter. The decline in earnings was led primarily by commodities in the previous quarter. The above mentioned brokerage expect earnings to decline in real estate, automobiles, banking, financial services & insurance (BFSI), media, and construction, in addition to commodities (metals & mining, cement). FMCG and capital goods are also expected to report only a marginal earnings growth. Oil marketing companies are, however, expected to post strong earnings growth.

The suspension of AS-11 till 2011 will result in significant increase in profits in Q4 March 2009, as companies may write back marked-to-market losses on foreign currency liabilities booked in the past three quarters.

The above-mentioned brokerage expects Sensex earnings to decline 5% in the year ending March 2010 (FY 2010). Capital goods, FMCG, oil & gas, and BFSI are expected to register earnings growth in FY 2010, whereas metals, cement and real estate are expected to see sharp earnings decline, it says in a recent report. Slowing economic growth, weak demand, and lower realisations will keep earnings growth and profitability of Indian corporates under pressure in the near term. With sales declining, operating leverage will result in margin contraction. However, this will now be partially compensated by lower input costs.

Consensus earnings expectations have consistently been revised downwards in the year ended March 2009 (FY 2009). There could be further earnings downgrades if the macroeconomic situation does not improve materially.

Asian stocks fell for a second day in a row on Wednesday, 8 April 2009, led by mining and finance companies, as losses at Alcoa Inc. and Daiwa Securities Group Inc. renewed concern the global recession is hurting corporate earnings. Key benchmark indices in Hong Kong, China, Japan, Indonesia, South Korea, Singapore and Taiwan were down by between 0.7% to 4.1%.