Pre-Market: Markets nervous on inflation, Q3 earnings

Inflation numbers and corporate earnings announcements could set the tone for the market in the coming week. It is keenly awaiting the consumer inflation and wholesale inflation data for December, to be announced on Monday and Wednesday, respectively. Experts say the market might react negatively if inflation does not show signs of cooling, as this will force the Reserve Bank of India (RBI) to react.

Quarterly result announcements by several large-cap companies, such as Axis Bank, Bajaj Auto, HDFC Bank, ITC, TCS and Reliance Industries will also have an impact.

After a sharp run towards the end of last calendar year, the markets have been listless. The BSE Sensex on Friday ended 0.2 per cent higher at 20,758, while NSE's Nifty closed at 6,171, up 0.05 per cent. According to provisional data from the exchanges, foreign investors were net buyers on Friday at Rs 68 crore, while domestic investors net-bought shares worth Rs 81 crore.

THE WEEK AHEAD

RESULTS
Thursday

• Axis Bank
• Bajaj Auto
• HCL Technologies
• TCS

Friday

• HDFC Bank
• ITC
• Reliance Industries
• Wipro

EVENTS
Monday

• December CPI

Wednesday

• December WPI

RBI, in its previous policy meeting, had kept interest rates unchanged due to inadequate data on inflation. However, it had said it might react, even out of turn, if inflation was not in control.

Experts, however, believe a sharp reduction in food prices can cool inflationary pressure. "We are expecting a downtrend in the inflation numbers, as food prices have fallen 20-25 per cent. The central bank may take cognizance and not look at a rate rise at this point," said Tirthankar Patnaik, director and chief economist, Religare Capital Markets.

Some even expect the central bank to do the opposite if the inflation data surprises positively. "If inflation improves, there could even be a case for an interest rate-cut,"said V Balasubramanian, vice-president and fund manager, IDBI Asset Management.

According to estimates, the Consumer Price Index number for December is expected at around 10 per cent, while that for the Wholesale Price Index is likely to be about seven per cent.

Technical analysts believe Nifty could trade in a range of 6,100-6,300, with support levels at 6,120, in the next few sessions. On the upper side, it could find resistance at 6,260, they said. Analysts said any rise in the market could be seen as a selling opportunity.

They said focus would be on stocks of the information technology (IT) sector, particularly after the good earnings numbers posted by Infosys on Friday. Infosys might have set the tone for the remainder of the IT results, they said. TCS, HCL Technologies and Wipro will announce their third quarter earnings numbers next week. "We have already seen prices of IT stocks rise. A further rise is possible, as these stocks remain the flavour among investors," said Vivek Mahajan, head of research at Aditya Birla Money. While Infosys gained 2.8 per cent on Friday, Wipro and TCS gained by 2.5 and 1.7 per cent, respectively.

Besides IT, stocks of the health care and metals sector are also expected to rise on anticipation of good earnings numbers.

However, stocks of the public sector banking segment, capital goods and infrastructure could continue to be under pressure, as these companies are expected to post weak numbers. A slew of public and private sector banks such as HDFC Bank, Axis Bank, YES Bank, Bank of Baroda, Allahabad Bank and IDBI Bank, among others, are expected to release their third-quarter numbers this week.

Sector analysts said the performance of private sector banks would be better than those of the public sector, which continue to be under strain due to poor asset quality.