Stock-specific action seen as Infy kicks off Q1 result season

Stocks may extend gains next week as companies start disclosing their results for the first quarter ended June 2010. Though a few results will start trickling from Monday, the real action will kick off with the Infosys earnings on Tuesday, 13 July 2010.



Some prominent results next week include, Infosys Technologies, Exide Industries and Hotel LeelaVenture on Tuesday, 13 July 2010, HDFC and South Indian Bank on Wednesday, 14 July 2010, TCS, Axis Bank, LIC Housing Finance, Castrol India on Thursday, 15 July 2010 and Chambal Fertilizers & Chemicals, BASF India and Honeywell Automation on Friday, 16 July 2010.

Advance tax collections for the first quarter of the current financial year point to a strong growth in corporate sector profits. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year. Corporate advance tax for the first quarter stood at Rs 26,876 crore, against Rs 20,456 crore in the year-ago period, a rise of 31.4%, the fastest since 2005.

Auto firms are seen reporting strong Q1 results on the back of healthy volume growth. However, margins could be under pressure due to higher input costs. Improved lending growth will spur bottom line growth of banks whereas healthy order book will drive earnings of capital goods and engineering giants L&T and Bharat Heavy Electricals (Bhel). Higher sales realisation would boost boom line of metal firms.

As far as the IT sector is concerned, the focus is on whether the IT bellwether Infosys revises its annual guidance when it announces the first quarter results on 13 July 2010. The IT bellwether will issue guidance for the second quarter ending September 2010 at the time of announcing the first quarter results.

On macro front, the major economic data due next week includes the industrial production data and monthly inflation report. Industrial production data for May 2010 will be released on Monday, 12 July 2010, while the inflation data will be released on Wednesday, 14 July 2010

The Reserve Bank of India (RBI) on 2 July 2010, hiked the repo rate by 25 basis points to 5.5% from 5.25%, with immediate effect. It also hiked the reverse repo rate, at which it absorbs excess cash from the banking system, by an equal 25 basis points to 4% from 3.75%. The central bank said the latest rate hike is a part of the calibrated exit from the expansionary monetary policy.

Two-thirds of WPI inflation in May 2010 was contributed by non-food items, suggesting that inflation is now very much generalised and that demand-side pressures are evident, the central bank said in a statement. WPI inflation increased to 10.2% in May 2010, up from 9.6% in April 2010.

In its April 2010 policy review, the Reserve Bank projected real GDP growth for 2010-11 at 8% with an upside bias. More recent data suggest that the upside bias has largely materialized, thecentral bank said. The growth projection will be reviewed in the first quarter review on 27 July 2010, RBI said.

Analysts expect another 25 basis points rate hike by the central bank at its quarterly review on 27 July 2010.

Investors are also closely watching the progress of the monsoon rains. Rains have revived after weak monsoon last month. Crop planting suffered last month as rainfall was 16% below normal, but rainfall deficit for the country as a whole has narrowed down to 10% for the period 1 June-8 July after heavy rains in the past few days. Rains were 2% above normal in the week ended 8 July 2010.

The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The south-west monsoon usually covers the entire country by mid-July. The weather office expects this year's monsoon rains to be at 102% of the long-period average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

Last week, the International Monetary Fund (IMF) raised its world output forecast for 2010, citing solid growth in the first half, especially in Asia, but warned of significant downside risks flowing from Europe. The IMF revised its 2010 world gross domestic product forecast to 4.6%, up from a previous forecast in April of 4.2%. The 2011 GDP forecast was unchanged at 4.3%.

The IMF raised India's growth forecast for 2010 to 9.5%, stating that favourable financing conditions and robust corporate profits will accelerate economic expansion. The IMF expects India's economy to grow 8.5% in 2011.

On the global front, US earnings season kicks off Monday, 12 July 2010, night when Alcoa reports results. Besides the earnings season, retail sales excluding autos, inflation figures, industrial production data and minutes of Federal Open Market Committee (FOMC) meeting are due next week. And from China, the Q2 GDP data is due next week. Market participants are expecting the data to show China's economic growth slowed to around 10% in the second quarter from the previous quarter's 11.9%.