Results, global cues to drive market

MARKET WATCH

The Sensex touched the 15,000 level on Friday, but failed to settle above it. A close above the psychologically crucial mark looks to be a mere formality, going by the market momentum.

The first quarter results and global cues are likely to drive the market in the coming weeks. Infosys kicks off the results season on July 11 and the Bank of Japan meets next week to take a call on the interest rates. There could be occasional bouts of profit-booking at higher levels.

Since a possible slowdown has already been discounted, the market is poised to scale new highs if the results meet expectations. However, caution should be the buzzword for the retail investor, as leveraged positions are on the rise in the derivatives market accompanied by results-related uncertainities.

Optimism is building up due to the strong momentum seen last week and the continuous inflow of funds. Moreover, the Reserve Bank of India's data showing a slowdown in banks' non-food credit growth has raised hopes that the central bank may pause its cooling-off measures as they have started yielding results.

According to the latest RBI data in June 2006, credit growth has slowed down to 24.63 per cent as on 27 June 2007 from 31.2 per cent in the corresponding period last year. On the other hand, the deposits have increased from 19.7 per cent to 24.46 per cent.

There is a perceptible shift towards IT stocks. The BSE IT index went up by 3.31 per cent on Friday, the highest in recent times, due to short covering. "Investors don't want to remain short, prior to the Infy results," said Shushil Choksey, director, Rosy Blue Securities.

According to Merrill Lynch estimates, the earnings slowdown in the first quarter may lead to a correction, unless there are positive surprises. Its report put the Sensex earnings growth for the June quarter at 19% yoy compared with 30% reported in FY07.

This slowdown is largely because the sales have grown at a mere 20% as against 30% in FY07. The rising interest rates and high base effect have begun to impact the sales numbers.

But the appreciating rupee is likely to benefit companies having a large exposure to foreign loans as the gains from forex loan are fully accounted in this quarter, while the negative impact on revenues would be spread through the 4 quarters of FY08 evenly. Telecom, industrials and cement will lead the earnings growth, while autos and metals are likely to disappoint.