No Clear Direction for the market…
The senxex started the month on a positive note and extended its gains throughout the first half of the month as investors’ sentiments were boosted on the hopes of reforms by the new UPA-led government. However, the second half of the month was marked by volatility and the indices could not hold on to the highs achieved earlier. Investors resorted to aggressive profit-booking reacting to weak global cues. Thereafter, the markets traded in a narrow range with a negative bias until the close of the month as investors began exhibiting apprehensions about a not-so-good monsoon.
Minister Manmohan Singh announced that with high savings rate, India can achieve a growth rate between 8% and 9%, even if the world economy does not improve. Further, firm global markets and higher US index futures helped Indian stocks register strong gains. In addition, the Finance Minister’s request to banks to reduce interest rates to speed up the economic recovery also boosted investors' sentiments.
As the recent stock market rally has been very swift, in our view, the markets may consolidate at the current levels in the near term. Moreover, with the delay in the monsoon in Northern and Western India, a possible shortfall in rains may weigh on investors' sentiments as it can adversely impact the disposable income in the rural and semi-urban region.
We believe that the upcoming result season may remain mixed for the investors. Below, we are highlighting our expectations from the key sectors that we cover.
Information Technology: Weak discretionary spending and continuing pricing pressures from large clients are likely to keep the growth of the sector low.
Banking: Earnings are likely to remain under pressure on account of lower net interest margins and higher provisioning, led by increasing delinquencies in the loan portfolio.
Real Estate: We expect revenues to increase as the residential sales volumes are picking up, especially in the mid income/ affordable housing segments. Further, we expect cash flows to improve due to an easing liquidity situation.
Automobiles: We expect an improvement in the earnings supported by rising demand, improved net realisations, and lower raw material cost.