Quarterly earnings should have a decisive impact on Indian share prices in the coming weeks, even overshadowing fading global risk appetite that took a toll on world stocks this week, including in emerging markets.

Expectations of strong results from Tata Consultancy Services, the country’s largest software services company, got a boost on Friday after rival Infosys Ltd — whose clients include Bank of America, Volkswagen and Daimler AG — beat market forecasts with a robust 28.6 per cent jump in September quarter profit to Rs39.96 billion (Dh2.4 billion).

New York-listed Infosys, which gets more than two-thirds of its sales from the US and Europe, also announced a one-for-one bonus issue of shares, driving its stock price up 6.6 per cent to Rs3,888.65 at close in a shaky market that saw the benchmark Sensex falling 1.3 per cent.

The upbeat results showed new CEO Vishal Sikka’s focus on using automation, artificial intelligence and design thinking to improve delivery efficiencies were working for the once trend-setter that had become a laggard for more than two years.

“We believe we can get back to that consistent profitable growth as well as achieve great growth and once again become a bellwether of the Indian IT industry,” Sikka, the first non-founder to run the company, told reporters at the company’s Bengaluru headquarters.

“We are renewing every service line, everything that we offer, on the basis of innovation, on the basis of automation,” he said. “We have started some of this work already, new platform for big data based on open source technologies that they are starting to work with clients now.”

Tata Consultancy Services, which reports its earnings on Thursday, is expected to deliver a strong performance based on its superior services and new initiatives into Japan. However, its stock already trades at a 25 per cent premium to the sector and so the upside potential is probably restricted in comparison to Infosys.

“Infosys’ valuations remain reasonable (16.1 times estimated 2015-16 earnings per share) and are at a 25 per cent discount to TCS. Owing to rollover to 2016-17, we upgrade our target price by 10 per cent to Rs4,265/share (16 times estimated 2016-17 earnings per share),” analyst Madhu Babu at HDFC Securities said in a report, maintaining a “buy” on the stock.

Reliance in focus

Energy conglomerate Reliance Industries Ltd, which owns the world’s largest refinery complex in Gujarat, is expected to report on Tuesday net profit grew three per cent to Rs57 billion despite sharply lower refining margins, according to Motilal Oswal Securities.

The main driver for Reliance, controlled by India’s richest man Mukesh Ambani, lay in its longer term outlook. The company’s fortunes would get a big boost when the government revises upwards gas prices – probably as early as in November — and as it rolls out fourth-generation telecom services across the country.

“While we believe inflection for Reliance’s earnings is still about a year away, our analysis suggests both earnings and ROCE (return on capital employed) could double in the subsequent five years,” Somshankar Sinha and Pooja Gupta at Barclays Capital said in a report.

As Reliance had underperformed the Sensex for seven years in a row, “we find risk-reward favourable,” they wrote, setting a price target of Rs1,100. The stock closed at Rs960.30 on Friday.

Other results in the coming week include IndusInd Bank, Bajaj Auto, Hero MotoCorp, Axis Bank and Zee Entertainment Enterprises.

Inflation data

Falling fuel costs and food prices should have pulled down the consumer price index (CPI) to around 7.2 per cent in September from 7.8 per cent in the previous month, continuing a falling trend and preparing the ground for lower interest rates at least by early 2015. The data will be released on Monday.

With global crude oil prices dropping further – Brent crude struck an almost four-year low of $88.1 on Friday – there will be good news for India, which depends on imports for about 80 per cent of its requirement.

The wholesale price index for September is expected to come in at around 3.2 per cent, down 3.7 per cent in August.

“We continue to expect RBI governor Raghuram Rajan to cut policy rates from February, as he gets greater clarity about meeting his 6 per cent January 2016 CPI inflation target,” DSP Merrill Lynch (India) economists Indranil Sengupta and Abhishek Gupta said in a note to their clients. “We have penciled in 75 basis points of RBI rate cuts in 2015.”

Madan Sabnavis and Garima Mehta, economists at Care Ratings, believe that growth prospects have improved from what was perceived in April, and the International Monetary Fund’s upward revision of growth forecast to 5.6 per cent in 2014 from its earlier projection of 5.4 per cent underlined this thought.

“Production has increased from year ago levels and inflation has recorded a deceleration. Going ahead, healthy investment inflows into the country, higher domestic demand and improved external demand will continue to spur production and subsequently exports in second half of 2014,” they wrote in a report.

Foreign selling

One discordant note for the markets is the sales by foreign funds, who had been heavy buyers for most of the year but have now turned profit-takers due to the impending US rate rise sometime in 2015 and also the slow pace of reforms by Prime Minister Narendra Modi’s new administration in New Delhi.

“So far, Modi does not seem to have produced results, which we all expected him to do. He said a lot of wonderful things, but so far nothing has happened, other than a lot of public relations,” Singapore-based Jim Rogers, who co-founded Quantum Fund with celebrity investor George Soros in the 1960s, told the Economic Times.

“The mood about India is still somewhat exuberant because Modi is still very popular since the last elections. But some people have begun to worry about how long this honeymoon period will go on,” he said.

Foreign funds sold more than $100 million of stocks this month and contributed to the 1 per cent drop in the top-30 Sensex this week to 26,297.38. The Nifty shed 1.1 per cent to 7,859.95.

The writer is a journalist based in India