Market may see volatility ahead of derivatives expiry

The market could be choppy next week ahead of the expiry on Thursday, 28 July 2011, of the near-month July 2011 futures & options (F&O) contracts. The key event of the week is the Reserve Bank of India's (RBI) monetary policy review on Tuesday, 26 July 2011. The RBI is seen raising its key lending rate by 25 basis points at its first quarter review of the monetary policy 2011-12 on Tuesday, 26 July 2011, to tame inflation, which remains much above the central bank's perceived comfort level of 5% to 6%.

As the crucial corporate earnings season gathers steam, investors will closely watch the post-Q1 June 2011 result management commentary to gauge the future earnings outlook at a time when Indian firms are witnessing cost pressures amid rising interest rates and staff costs. A hike in transportation costs will add to cost pressure of India Inc. As per reports, freight rates have gone up by 8% to 9% on all routes across India following the recent hike in diesel prices.

Godrej Consumer Products reports Q1 earnings on Saturday, 23 July 2011. Reliance Industries (RIL) and Sterlite Industries will announce Q1 results on Monday, 25 July 2011. RIL is seen reporting decent Q1 results on Monday, 25 July 2011, as higher refining margins offset lower petrochemicals margins and lower KG-D6 gas production. RIL is seen reporting 15.44% growth in net profit to Rs 5600.35 crore on 28.7% growth in net sales to Rs 74951.47 crore in Q1 June 2011 over Q1 June 2010, as per average estimate of 10 brokerages. Analysts see RIL's average KG-D6 gas volume declining to 49 mmscmd in Q1 June 2011.

Car major Maruti Suzuki, steel major JSW Steel, power equipment major Bhel, decorative paints major Asian Paints and Shriram Transport Finance Company are set to unveil Q1 results on Tuesday, 26 July 2011. UltraTech Cement, HCL Technologies, GAIL (India), Bank of Baroda, Infrastructure Development Finance Company (IDFC), Oil India and Lupin unveil results on Wednesday, 27 July 2011.

State-run oil exploration giant ONGC, FMCG giant Hindustan Unilever, Cigarette major ITC, Sun Pharma, cement majors--ACC and Ambuja Cements, Jindal Steel & Power, state-run Punjab National Bank, and GSFC unveil results on Thursday, 28 July 2011. ICICI Bank, Power Finance Corporation, Bhushan Steel, Idea Cellular and TVS Motor unveil Q1 results on Friday, 29 July 2011.

Engineering & construction major Larsen & Toubro could be in focus as its unit, L&T Finance Holdings, comes out with an initial public offering (IPO) on 27 July 2011. L&T Finance Holdings has set a price band of Rs 51-59 for its Rs 1245-crore IPO. Subscriptions will close on 29 July 2011.

Investors will continue to watch the progress of the monsoon rains. Rainfall between July 14 and July 20 was 7% above the long-term average, according to the India Meteorological Department, following two successive weeks of below-average rains that raised concerns about crops. July is the crucial month for sowing rice, sugarcane, pulses and cotton. The seasonal rainfall deficit had widened to 3% below the long-term average last week, but now stands at 1% below normal. So far, 12% of the country has had below-average rainfall, while 88% had normal or excess showers. The June-September monsoon season brings about 70% of India's annual rainfall and is crucial for crops as about 60% of the country's farmland is rain-fed.