Patience can break through iron doors ~ Yugoslavian Proverb.
While the key indices broke new ground with the Nifty breaching 5400 and the Sensex 18,000, a disappointing IIP report played spoilsport. The drop in May industrial output has taken most people by surprise but the overall outlook for the Indian economy still remains pretty robust. If all goes well, including Infosys results and guidance, the Nifty might surpass 5400 in opening trades. How it closes the day will partly hinge on global cues. We have been stressing on strong FII inflows lately and Monday’s figure once again shows that they are here to stay. Local funds, on the other hand have been cautious.
Asian markets are mostly positive though Chinese stocks are in the red. US stocks eked out slim gains while benchmarks in Europe were moderately higher. Alcoa’s results have beaten consensus expectations and the aluminium major remains cautiously optimistic.
Back home, Infosys will kick off earnings for the large IT firms. As always, what the tech giant says about the future and its guidance will hold the key. The stock has been hitting 52-week highs lately, and may not move much.
IIFL's institutional research team expects Infosys to beat its guidance with a ~6% constant-currency revenue growth (QoQ) in the April-June quarter as against a guidance of 3.4% QoQ. While IIFL expects Infosys to beat its Q1 FY11 guidance by ~3pps, it sees Infosys maintaining a cautious stance due to uncertainty over Europe and not increase the FY11 revenue guidance by more than 1%. EPS guidance, on the other hand, could be revised upwards by as much as ~5%, on the back of a cheaper rupee, says IIFL.
Infosys’ second round of salary hikes has been a margin headwind in Q1 FY11, according to IIFL. However, it reckons that better volume growth and higher utilizations would restrict the margin fall at ~100bps. Except in FY09, Infosys has raised its guidance by ~5-10% every year over the past five years, says IIFL. "Given the pick-up in demand momentum and a conservative 3.6% implied CQGR, we think Infosys is set for a ‘beat and raise’ year for its guidance," it adds.
Coming back to the markets, the Nifty could head further north and may shortly touch 5500-5500. But, it won't be a cakewalk and there will be a few hiccups along the way. Also, the Nifty is likely to face some resistance if it does manage to touch new intermediate highs in the near term. One should look at any dips as good buying opportunities as the medium- to long-term outlook continues to be healthy.
Meanwhile, the Japanese yen traded near a two-week low against the dollar while Australian and New Zealand dollars traded near the strongest levels since June amid rising risk tolerance. The euro halted losses versus the dollar after reports suggested that China bought Spanish bonds last week. But, gains in the 16-nation currency were limited amid lingering concerns that the upcoming banking stress tests will fail to reassure investors. EU finance ministers gather in Brussels today to discuss procedures for the stress tests and disclosure of the findings.
China’s stocks fell, with the benchmark index declining the most in almost two weeks, after the government quashed speculation that policy makers will abandon property curbs. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 29.73, or 1.2%, to 2,460.99 as of 10:27 a.m., the most since June 29.
The Ministry of Housing and Urban-Rural Development reiterated that it will maintain curbs on speculative purchases and increase market supply. The statement was in response to media reports that said China may abandon its current property policies, it said.
Results Today: Exide Industries, Hotel Leela and Infosys.
FIIs were net buyers of Rs10bn in the cash segment on Monday (provisionally), according to the NSE web site. Local funds were net sellers of Rs2.93bn. In the F&O segment, they were net buyers at Rs15.83bn. On Friday, the FIIs were net buyers of Rs34.65bn in the cash segment.