Market may extend losses; next batch of Q3 results eyed

Concerns about high inflation, rising interest rates and fears of slowing corporate earnings may continue to weigh on the bourses in the near term. If stocks continue to slide, short-term hot money flows from foreign funds may reverse, which may put further pressure on share prices. According to technical analysts, the near-term outlook is weak with the 50-unit S&P CNX Nifty having fallen below a key support level of 5,600. The Nifty lost 3.23% and the barometer index Sensex lost 3.22% in the week ended Friday, 28 January 2011.



The results announced so far have been mixed. Earnings of firms which beat market expectations include the country's largest lender State Bank of India, two-wheeler maker Bajaj Auto, engineering and construction firm L&T, cigarette and packaged foods maker ITC and IT giant TCS. Others such as energy giant Reliance Industries, IT bellwether Infosys, drug maker Dr Reddy's and consumer products firm Hindustan Unilever lagged expectations.

With the rise in key policy rates by the Reserve Bank of India (RBI) recently, interest cost will only rise in the coming quarters that could hurt earnings going forward. If raw material costs keep rising at a fast clip, companies will feel the heat of slowing sales growth and rising cost of operations that could start eating into profit growth faster than they have till now.

The combined net profit of a total of 683 firms rose 20.1% to Rs 49158 crore on 20.2% growth in sales to Rs 415367 crore in Q3 December 2010 over Q3 December 2009.

Shares of car major Maruti Suzuki will react to the firm's Q3 results when trading resumes on Monday, 31 January 2011. The company unveils Q3 results on Saturday, 29 January 2011. BPCL, Infrastructure Development Finance Company (IDFC), NTPC, DLF, and Sun Pharma are due to report earnings on Monday, 31 January 2011. Bharti Airtel and Hero Honda report third quarter results on Wednesday, 2 February 2011, to be followed by ACC and Ambuja Cements on Thursday, 3 February 2011. Suzlon Energy reports Q3 results on Friday, 4 February 2011.

Auto and cement firms will be in focus as companies start unveiling monthly sales data for January 2011 from 1 February 2011.

On the macro front, the data on HSBC Manufacturing Purchasing Managers' Index for January 2011 is likely to be announced on Tuesday, 1 February 2011. The index, indicating the performance of the manufacturing sector had eased to 56.7 in December 2010 from November's reading of 58.4.

The data on HSBC Markit Business Activity Index for January 2011 could also be released next week. The HSBC Markit Business Activity Index, indicating the performance of the services sector, had eased in December 2010 from a four-month high in the previous month, reflecting a slightly slower expansion in new business. The HSBC Markit Business Activity Index, based on a survey of around 400 firms, fell to 57.7 in December 2010 from 60.1 in November 2010 -- its strongest reading since July 2010.

Fears of a rate hike in China to tame inflation may cap upside on global stocks. There are talks of a rate hike from Chine before the onset of the Lunar New Year holiday. The Chinese stock markets are shut from 2 February 2011 to 8 February 2011 for the Lunar New Year holiday. The Chinese government recently announced increase in the minimum down payment on second-home purchases to 60% from 50%.