Shares in India are expected to stay circumspect with the “festival of lights” unlikely to provide any fireworks as investors watch global developments and domestic data for direction.
Uncertainty in the Eurozone and US budget negotiations to help ward off the “fiscal cliff” will keep large global funds on the edge, while domestic issues such as the government’s resolve to push ahead with more reforms would be put to the test.
Investors will also be reticent to build positions with normal trading restricted to just three days because of the “Diwali” holidays.
Industrial output data due on Monday is expected to show steady small growth in September, which is unlikely to set a fire under the market.
Inflation data for October is scheduled on Wednesday, when the markets are closed. Price pressures should remain firmly on the rise, with increases in fuel costs leading the way. The snail’s pace of growth in factory output and heightened price pressures are bad news for stock investors.
“We are up against the large headwind,” Ajay Bodke, head of investment strategy and advisory at Prabhudas Lilladher, told ET Now, even if global risk factors were to recede.
“The market will be watching for the on-ground implementation of reforms from the Indian policymakers. For example, a rollback in the LPG cap will be closely watched. Moreover, the earnings have been very patchy and mixed,” he said.
Corporate earnings at the tail end of the season were disappointing.
Tata Steel, which has nearly two-thirds of its total capacity of 28 million tonnes in Europe, surprisingly reported a quarterly loss and said the near-term outlook remained subdued.
“European steel demand and prices have weakened since spring and this took its toll on our financial performance,” said Karl-Ulrich Koehler , head of European operations at Tata Steel and added that he didn’t expect the situation to improve this year.
The result chopped more than 3 per cent of the company’s share price and trimmed the stock’s gain so far this year to 16 per cent, widening the underperformance with the benchmark top-30 Sensex that has risen about 22 per cent.
Oil and Natural Gas Corp also lost more than 3 per cent after subsidies, the state-run energy explorer is forced to bear, took a bigger-than-expected bite off its earnings. Even State Bank of India, the country’s largest lender, unveiled results that were below market expectations.
“Almost all the results that brought up the rear of the reporting season were hugely disappointing,” said equity salesman Rasesh Shah.
“While for Tata Steel it was global factors that squeezed its margins, for ONGC and SBI the problems were very much domestic issues.”
Little surprise foreign institutional investors have turned net sellers in November after gobbling up shares worth about $4 billion (Dh14.6 billion) in the previous two months. To lure them back, the government will have to walk the talk on its reforms agenda.
There is speculation the Congress party, which heads the coalition government in New Delhi, will raise the number of subsidised cooking gas cyclinders to nine a year for each household from six. A formal announcement is expected after the Gujarat polls in December.
The Sensex, which fell 0.4 per cent in the week to Friday to 18,683.68, is set to move in a narrow range in light trading volume.
The rupee shed 1.7 per cent, its second consecutive weekly fall, to 54.75 against the US dollar.
Some of the earnings due are property developer DLF Ltd, budget carrier SpiceJet and construction, cement and engineering firm Jaiprakash Associates.
The writer is a journalist based in India