Stock-specific action to continue

Stock-specific activity is likely to continue in the near term based on first quarter result announcement or expectations about first quarter results of individual firms. Many front line companies such as State Bank of India, Bharti Airtel, Tata Motors and Tata Steel, are still to announce their results.



Private sector bank ICICI Bank reports first quarter results on Saturday, 31 July 2010. On Monday, 2 August 2010, gas transmission and distribution firm GAIL India unveils first quarter results, to be followed by copper and aluminium major Hindalco Industries on Tuesday, 3 August 2010 and Infrastructure Development Finance (IDFC) on Wednesday, 4 August 2010. Power Grid Corporation reports first quarter results on Friday, 6 August 2010.

The results announced so far have been a mixed bag. The combined net profit of a total of 1,085 companies declined 12.6% to Rs 47280 crore on 23.1% increase in sales to Rs 609368 crore in Q1 June 2010 over Q1 June 2009.

Auto and cement stocks will be in focus early next week as companies announce sales volumes for July 2010. On the macro front, HSBC's manufacturing Purchasing Manager's Index (PMI) for July 2010 will be out on Monday, 2 August 2010. The index had declined to 57.3 in June 2010, from 59 in May 2010.

During the week ahead, HSBC will also unveil the services sector PMI for July 2010. The index, which shows business activity in the services sector had reached a two-year high of 64 last month.

There are concerns of sharper monetary action going ahead following hawkish comments by a central bank official on Thursday, 29 July 2010. Current interest rates would not tame inflation and aggressive action was needed, an RBI official said on Thursday. The Reserve Bank of India (RBI) at its Q1 monetary policy on Tuesday, 27 July 2010, raised its key short term interest rates for the fourth time this year to curb surging inflation. The central bank also raised its economic growth and inflation forecasts.

On the flip side, the revival of monsoon rains in the crucial sowing month of July 2010 augurs well for the Indian economy which is driven by strong domestic demand. The annual monsoon rains were 38% above normal in the week to 28 July 2010, bouncing back from a 17-percent deficit in the previous week. Heavy, well-distributed showers in the past week helped total rainfall rise to normal during July, the most important month for planting rice, corn, soybean and cane.

The Southwest monsoon was active over Andaman & Nicobar Islands, Vidarbha, Andhra Pradesh, Karnataka and Kerala during past 24 hours, the India Meteorological Department (IMD) said in its daily update on Thursday, 29 July 2010. The weather office expects fairly widespread rainfall over west coast, northwest, east and northeast India in the near term.

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 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.

Meanwhile, the government is trying to persuade truckers not to go on strike from 6 August 2010 to press their demand for lower toll tax. Truckers lobby group, the All India Motor Transport Congress (AIMTC), has called for lower toll tax failing which it plans to take nearly 62 lakh trucks off roads from 6 August 2010, and halt movement of goods across the country.

Coming back to stocks, ITC turns ex-bonus from Tuesday, 3 August 2010. The cigarette major has announced a liberal 1:1 bonus.

Foreign funds continue to mop up Indian stocks. Foreign funds have bought shares worth a net Rs 8109.64 crore this month (till 29 July 2010), absorbing selling by domestic institutional investors. Domestic funds have sold shares worth a net Rs 6193.15 crore this month (till 29 July 2010), as per data from the stock exchanges.

Foreign funds had pumped in Rs 7713.97 crore in equities in June 2010, absorbing selling by domestic funds in that month. Domestic funds had dumped shares worth a net Rs 4777.05 crore in June 2010.

Asia ex-Japan equity funds absorbed more than $1 billion in the week ended 28 July 2010, their biggest inflow in 14 weeks, according to data from global fund tracking firm EPFR Global. Indian equity funds posted an eighth consecutive week of inflows and China stock funds recorded the biggest weekly intake since mid-April, EPFR said.