Q2 results to set the tone

The Q2 September 2010 results season, which kick-starts next week, is a major near-term trigger for the market, which has risen sharply over the past few weeks on heavy buying by foreign funds. Possibility of a near-term weakness on the bourses cannot be ruled out as investors may sell some shares in the secondary market to make a room for investment in the initial public offer (IPO) of Coal India, billed as the country's largest issue ever.



The IPO of Coal India opens for bidding on 18 October 2010. The government plans to raise about Rs 15000 crore to Rs 16000 crore from divestment of 10% stake in Coal India.

Batteries maker Exide Industries starts Q2 September 2010 reporting season on Tuesday, 12 October 2010. Axis Bank, LIC Housing Finance and Rallis India are due to report Q2 results on Thursday, 14 October 2010, to be followed by IT bellwether Infosys Technologies on Friday, 15 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.

Tier-I IT firms viz. Infosys, TCS, Wipro, and HCL Tech are seen reporting strong earnings growth in Q2 September 2010 as high volumes will boost operating margins. However, the IT sector faces headwind of a firm rupee in Q3 December 2010. The rupee hit a 2-year high against the dollar on Thursday, 7 October 2010.

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.

Some macro data is also in focus next week. On Tuesday, 12 October 2010, the government will unveil data on industrial production for August 2010. Industrial production had jumped a robust 13.8% in July 2010. On Thursday, 14 October 2010, the government will unveil data on wholesale price index for September 2010. The wholesale price index, the most widely watched gauge of prices in India, rose 8.5% in August 2010.

India needs to take "drastic" action to control inflation, Reserve Bank of India deputy governor Subir Gokarn said recently. He said inflation remains well above the Reserve Bank's comfort zone. Gokarn said normalisation of monetary policy was now near completion, and further policy action would depend on upcoming data on growth and inflation.

An unavoidable consequence of runaway inflation is that drastic action by the central bank and also by the government is needed to rein it in, which is bound to disrupt growth process, Gokarn said. Food and energy price shocks have been a regular part of the economic landscape and may continue to be so in the future, Gokarn said. The next quarterly policy review by the central bank is on 2 November 2010.

Capacity constraints in the rapidly expanding economy are contributing to the sharp rise in prices, the International Monetary Fund said in its World Economic Outlook for 2010 released on 6 October 2010.

On the global front, there has been growing speculation in the markets as to whether the Federal Reserve will choose to implement another round of quantitative easing at its November 2010 meeting in order to boost the sluggish recovery.

Emerging-market equity funds received net inflows of more than $6 billion in the week to 6 October 2010, the most since late 2007, according to the latest data from global fund tracker EPFR Global.