Auto, FMCG shares may advance on good rains

Bears are calling the shots on the bourses. A steep setback this month has pulled the market to 1-1/2-year low. Heavy selling by foreign funds this month has hit sentiment adversely. Multiple forces such as a standoff between the government and anti-corruption activist Anna Hazare over the Lokpal Bill, concerns about corporate earnings growth amid high interest rates, euro-zone debt worries, and concerns about a slowdown in the United States, the world's biggest economy, are currently weighing on Indian shares.



Next week is a truncated trading week. The stock market remains closed on Wednesday, 31 August 2011, on account of Ramzan Id and again on Thursday, 1 September 2011, on account of Ganesh Chaturthi.

Auto and cement shares will be in focus next week as companies from these two sectors start unveiling monthly sales for August 2011 data from Friday, 2 September 2011. Good rains this year may generate buying interest in shares of two-wheeler makers and consumer goods firms. Good rains will help boost rural incomes, which in turn may boost sales of consumer goods.

The near-term prospects for agricultural sector remain good. The rainfall deficit in the country had widened to 5% of the long-term average in July 2011, but a pickup in August 2011 helped narrow the deficit to 1% by 24 August 2011. Good rains may also help bring down food inflation.

There is also expectation of pick-up in sales of two-wheelers, cars and utility vehicles during the upcoming festive season. The festive season starts with Onam early next month and will last until Diwali, the festival of lights, at the end of October 2011.

On the macro front, the government will unveil data on first quarter GDP growth on Tuesday, 30 August 2011, which may provide cues on the central bank's likely policy stance at its mid-quarter policy review on 16 September 2011.

Shares of exporters and other Indian firms relying on European and US markets such as Tata Steel and Tata Motors may continue to face further downward pressure amid a likely economic slowdown in the US and Europe. Bilateral trade between India and the US stood at $36.5 billion in 2010.

Commerce Minister Anand Sharma recently said that India's discussions with the European Union (EU) and Canada to form free-trade agreements are in advance stages. India aims to boost bilateral trade with Canada to C$15 billion (US$15.3 billion) a year by 2015 from about C$4.2 billion in 2010. With the 27-member EU, India had initiated discussions on the free-trade pact in 2007. The two sides originally hoped to conclude a wide-ranging deal by 2010 to boost trade to $237 billion annually by 2015. Their bilateral trade is currently worth about $92 billion.