Infy results, economic data to dictate trend

The market is entering an important period of quarterly earnings, with IT bellwether Infosys kickstarting the reporting season on Tuesday, 13 April 2010. The Q4 March 2010 results and management commentary on outlook could result in revision in earnings estimates of individual firms from analysts for the year ending March 2011 (FY 2011). The market sentiment remains firm due to sustained buying by foreign funds.

The key economic data on tap is industrial production for February 2010 on Monday, 12 April 2010, to be followed by inflation for March 2010 on Wednesday, 14 April 2010. The stock market has already priced in a rate hike of at least 25 basis points in April 2010. However, a substantially stronger-than-expected industrial production data and higher-than-expected rise in inflation may fuel expectations for a 50-basis-point hike in policy rates when the central bank reviews policy on 20 April 2010.

Industrial production is seen rising 16% in February 2010 from a year earlier, a tad lower than an annual rise of 16.7% in January 2010. The headline inflation for March 2010 is expected at above 10%, topping February's 9.89% rise. The Reserve Bank of India, citing inflationary pressures and an improving economy, hiked key rates by 25 basis points last month.

Foreign institutional investors (FIIs) continue to mop up Indian stocks. As per data from the stock exchanges, FIIs bought equities worth a net Rs 1535.15 crore in the first few days this month on the top of a heavy inflow of Rs 14792.32 crore last month.

Funds investing in emerging-market stocks attracted the highest inflows in six months in the week ended 7 April 2010, garnering $3.27 billion, according to EPFR Global. All four big fund groups in this category took in fresh cash, with Asia ex-Japan funds helped by gains to China equity funds which had their best week since late January 2010. China equity funds drew $190 million.

Coming back to fourth quarter results, automobile firms are seen reporting strong Q4 March 2010 results on a healthy volume growth. However, the sector is witnessing a headwind of rising input costs. Recently, Maruti Suzuki raised car prices due to a surge in input costs and shift to new emission norms from 1 April 2010. M&M, too, hiked utility vehicles prices recently.

The Society of Indian Automobile Manufacturers (Siam) expects vehicle sales in India to grow 10-15% in the fiscal year to March 2011 (FY 2011). A total of 12.3 million vehicles were sold in the country in the year ended March 2010 in FY 2010, up 26.4%, Siam data showed.

An abnormally high loan growth at the fag end of March 2010 may underpin Q4 March 2010 earnings from the banking sector. However, huge treasury gains in Q4 March 2009 could negatively impact bottom line growth due to a base effect.

As far as Q4 results of the cement sector is concerned, a positive impact of higher cement prices may be partially negated by higher power and fuel costs arising from increase in prices of domestic and imported coal, higher incidence of excise as the government increased excise duties in the Union Budget 2010-11 and higher freight cost as prices of diesel increased post budget.

Steel firms are seen reporting strong Q4 results on the back of a sharp increase in realizations and low base effect as volumes in Q4 March 2009 were hit by the global economic slowdown. Volumes at Tata Steel and JSW Energy will get additional boost from expansion in capacity.

Non-ferrous metal manufacturers, too, are seen reporting strong Q4 results due to low base effect and substantially higher realizations. However, increase in input costs could weigh on bottom line growth on a sequential basis.

Improving macro-economic environment and buoyancy in advertisement spends is expected to drive earnings growth for the media sector. Telecom, FMCG and automobiles continue to lead spending on advertisement.