Next batch of Q3 results will dictate trend

Market will be closely watching US markets at a time when US recession worries loom large on global markets. The Q3 December 2007 results announced by corporate India, so far, have been more or less in line with market expectations.
Market men would be closely looking at Q3 results of ONGC, Satyam Computer Services, Grasim Industries, HDFC Bank, Dr. Reddy’s Laboratories and Bharat Heavy Electricals which are expected next week.
There might be some liquidity drain from the secondary market as the mega initial public offer (IPO) of Reliance Power received an overwhelming response to its IPO which ended on 18 January 2008. Meanwhile as per reports, state-owned telecom services provider Bharat Sanchar Nigam (BSNL) reportedly plans to launch India’s biggest initial public offer to raise about Rs 40,000 crore (over $10 billion).
US recession fears may bog down the markets as seen last week after global markets followed US market slump. Recently, Citigroup posted first-ever quarterly loss and disappointing holiday shopping numbers fueled fears that the world’s largest economy was heading into a recession. Pessimism about the US economy further mounted after Intel Corp the world's largest chip maker, posted earnings and a profit forecast that disappointed investors. However, JP Morgan's results suggested some banks can still make a profit despite turmoil in the credit market.
Market could find some support from optimism that Federal Reserve Chairman Ben Bernanke will cut interest rates at its meeting later in the month. This in turn may results in higher FII inflow to emerging markets including India. FII inflow in January 2008 totaled Rs 780.20 crore (till 16 January 2008). FIIs had bought shares worth Rs 5,579.10 crore in December 2007.
India’s annual inflation, based on the wholesale price index (WPI), moved up 3.79% in the week ended 5 January 2008 compared with 3.5% in the week ended 29 December 2007.

Market Likely to see near-term pressure: SBI MF

CIO of SBI MF on Market:


Q: What’s your sense, are we somewhere close to the bottom or do you see more pain left?

Sinha: I would say that since the closing has been above 19,000 levels maybe as a milestone that would act as a support but if one looks as to what are the technical factors in the markets and not strictly technicals. We have a large issue, which is closing today which has had a fairly strong response in terms of subscription. I’m sure it has sucked out a lot of money from various other sources into the subscription amount and this money is not going to come back till the February 4, which means that for quite some period of time, they may not be access to liquid money to be invested in the markets. So that maybe one of the reason why we have seen this sort of pressure in the markets and the global markets have also not been very supportive in terms of the news flow that is coming from there.

So if I look at the horizon in the time form now upto first week of February, we have some events which are there before us in this intervening period such as the RBI credit policy and also the Fed meet in the background of statement, which have been made by Bernanke. We will start building in expectations leading upto the budget and there are some expectations about some fiscal measures, which the government will take in this budget, which might be looked at as a very strong signal to the economy in general and corporates in particular. So in a mix of these events, I would say that this is the near-term pressure which would probably not hold for too long and we should see the market again gaining traction maybe from the last week of January or maybe from the early week of February.

Q: Do you think 19,000 is around the levels where we could bottom out or do you see a chance for the market going down and testing somewhere close to 18,000 levels in this fall?

Sinha: I would say that this level should hold and while it would be difficult to take a very accurate call as to weather we might or we may not slip another 400-500 points from here, I would say that we are suppose to go 18,500 levels hypothetically there. There would be a fairly strong support, which would come from the money which is setting on the sidelines waiting to come to the market and which has been waiting for a correction for quite some period of time.

So I would say that even if we slip to those levels, those levels will not stay for too long and will bounce back very sharply.

Q: What’s your sense of how these power stocks might fare now from here on?

Sinha: There is certain amount of skepticism about the valuations of power stocks in general and I would say that skepticism would continue till the time, as one can see execution on the ground. So we have a scenario that the Reliance Power issue is not the only one, we have infact also a series of other power stocks coming in with initial public offerings. So this sector might be in the limelight, the valuations maybe in the upper end of the stretched band and if one do not have negative news coming into the sector, we would have to live with a situation of an overvaluations for sometime to come, pending news on execution.

Q: What about sugar that had a great run and sold off completely today, where do you stand on fundamentals and valuations of that sector?

Sinha: The fault today was triggered by an event, which happened in Uttar Pradesh because of a judicial call, and also by the government’s decision to act on that. But if one looks at the sugar future, those futures have spiked off very sharply responding to the fact that the Indian sugar output may not be as much as what it was initially estimated to be and if that be true and if the Indian sugar output is somewhere close to 24 million tonnes this year, then one will have a scenario where the sugar prices globally will be firming and the Indian sugar prices will also take one from there. So there maybe a need to revisit the view that one has had on the sugar stocks for quite some time and that view has been bearish.

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