Next batch of Q2 results in focus

Strong initial Q2 September 2010 corporate results and ample global liquidity will ensure buying support for equities though volatility may rise as traders roll over positions in the derivatives segment from the near-month October 2010 series to November 2010 series ahead of the expiry of the October 2010 contracts on Thursday, 28 October 2010.



Shares of firms announcing Q2 results will be in focus next week. Pharma major Dr Reddy's Lab announces Q2 result on Saturday, 23 October 2010. On Monday, 25 October 2010, FMCG giant Hindustan Unilever reports Q2 results. Jindal Steel & Power, NTPC and Sterlite Industries are due to report Q2 results on Tuesday, 26 October 2010. Cairn India, ONGC, Punjab National Bank and Steel Authority of India (Sail) are scheduled to report Q2 results on Thursday, 28 October 2010.

Bharat Heavy Electricals (Bhel), BPCL, Hero Honda, ITC, ICICI Bank, and Mahindra & Mahindra, will unveil Q2 results on Friday, 29 October 2010. Car major Maruti Suzuki, Sun Pharmaceuticals Industries and Suzlon Energy are due to report earnings on Saturday, 30 October 2010.

Higher volumes and price hike will aid earnings growth of most auto firms in Q2 September 2010 though analysts will closely eye operating profit margins and outlook on margins in the face of rising metal prices. Banks are seen reporting decent-to-strong earnings growth on the back of pick-up in credit offtake. Manufacturers of base metals are also seen reporting strong Q2 results on the back of higher metal prices. Increase in product prices will offset higher input costs for consumer staples firms in Q2 September 2010. But, cement firms will report dismal results due to a sharp fall in cement prices during the monsoon season.

The results announced so far have been encouraging. The combined net profit of a total of 291 firms surged 24.5% to Rs 20581 crore on 19.4% growth in sales to Rs 147899 crore in Q2 September 2010 over Q2 September 2009.

While global liquidity remains ample, a section of the market is worried that a strong equity issuance pipeline over the next six months will soak liquidity from the secondary equity markets. Indian companies are estimated to raise about Rs 80000 crore from equity and debt issue over the next three to six months. State-run Power Grid Corp, Steel Authority of India and Indian Oil Corp are some of the companies that are planning large share sales in coming months.

Inflows into secondary equity markets could be hit in the immediate short term due to diversion of funds to the mega Rs 15000-crore Coal India initial public offer (IPO), which was concluded on Thursday, 21 October 2010. The issue was subscribed more than 15 times. Pressure on fund outflows will ease in late October 2010 or early November 2010 as Coal India begins to refund excess subscriptions received towards its initial public offering.

Foreign funds have made heavy purchases of Indian equities this year. Net equity inflow in 2010 now stands at a record $23.95 billion, above last year's $17.45 billion, as per data from the Securities & Exchange Board of India (Sebi). The Sebi data includes FII inflow through primary and secondary market route.

A sizable chuck of FII inflow this year is from India-focused exchange traded funds as well as long-only funds.

Global emerging-market equity funds drew record inflows in the third week of October 2010 as investors sought growth in developing nations and the dollar weakened, according to global fund tracker EPFR Global. The funds took in $3.8 billion in the week ending 20 October 2010. Year-to-date inflows to global emerging-market equity funds exceed the record $44.2 billion for the whole of 2009.

Asia ex-Japan, Latin America and EMEA equity funds posted inflows ranging from $327 million to $981 million in the week ending 20 October 2010. Dedicated BRIC (Brazil, Russia, India and China) equity funds had their best week since February 2010, but were again eclipsed by Frontier equity funds, which pulled in $150 million, a 145-week high. Turkey equity funds saw inflows for the eighth week.

Prime Minister's Economic Advisory Council C. Rangarajan said in a newspaper interview that the time has not yet come for India to check surging capital inflows. "Larger capital inflows are needed to finance the current account deficit. So far, the capital inflows are not causing a distortion," the report quoted Rangarajan as saying.

He said India's current account deficit could be more than 3% of its gross domestic product by the end of the current financial year to end-March 2011, and the economy could afford to absorb more capital flows into reserves, the paper reported. India's current account deficit was nearly 3% of GDP at a record $13.7 billion in June 2010.

On Thursday, 21 October 2010, Planning Commission deputy chairman Montek Singh Ahluwalia said current capital flows were not destabilising so far, though the Reserve Bank of India would have to look at flow of funds for taking action in coming days.