Earnings results from companies will set the direction for Indian shares, while pundits are undecided on whether the central bank would accede to New Delhi’s subtle hints and lower interest rates to help bolster sagging growth.

Shares in Tata Consultancy Services (TCS) could rally to record highs after the country’s largest software services company reported a forecast-busting 44 per cent jump in quarterly profit and painted a robust outlook. The company, which gets about 80 per cent of its revenue from the US and Europe, announced the result after the market closed on Friday.

“We have done very well, and we look optimistic,” N. Chandrasekaran, chief executive of TCS whose big clients include Citigroup and Volkswagen, said. “We’ve grown in every market. There have been at least 11 new deal signings and these deals have come across industries and across markets.”

The company, which signed new clients such as Scandinavian Airlines and Turkey’s Ziraat Bank, said among the market segments that grew was financial services which contributed 42.8 per cent of its revenues in the September quarter. “If you look at our engagements that we have executed and also in pipeline, our investments in digital, whether it is social media, big data, mobility, analytics and cloud, are gaining tremendous traction,” Chandrasekaran said.

“There have been many pleasant surprises in the quarterly earnings parade,” equity salesman Bhavesh Patel said. “The message that comes through is of a silver lining despite the economic gloom that weighs over the domestic and world economy.”

Cost-cutting drives outsourcing

Indeed, the reason why TCS and smaller rival HCL Technologies — whose profit galloped 78 per cent in the September quarter from a year earlier — are doing so well is because big global companies and governments across much of the world are increasingly outsourcing key operations to reduce their costs.

Cement companies, which depend on domestic demand to drive their earnings, have also beat market expectations, indicating that construction activity has not been dented as the government’s poorly managed statistical department seems to suggest.

Although many large projects have been held up due to the delays in decision-making by various ministries, building of houses, apartment blocks and shopping malls have continued at a rapid pace.

Shares in diversified ITC, the leading cigarette maker, sped to an all-time high of Rs299 (Dh20.39) after the company’s September quarter profit rose 22 per cent and the company said it would stick with its plan to expand its hotels chain, step up consumer goods business and lower its reliance on tobacco.

Results from more blue-chip companies are coming up. These include energy explorer Cairn India, top mortgage firm HDFC, leading engineering conglomerate Larsen & Toubro and third-ranked mobile operator Idea Cellular on Monday; motorcycle maker Hero MotoCorp and Yes Bank on Tuesday; utility vehicle and tractor leader Mahindra & Mahindra on Thursday and ICICI Bank and top utility NTPC Ltd. on Friday.

Punishment for poor performers

“Earnings will continue to dominate the market,” equity trader Rahul Sanghi said. “Investors are becoming very selective; they punish the poor performers and reward the outperformers and this is being led by the big foreign funds.”

Energy giant Reliance Industries saw its shares slide 2 per cent after it reported a fourth straight quarter of profit declines. Its net profit dropped 5.7 per cent in the September quarter to Rs53.8 billion, squeezed by lower refining margins and falling gas output from its field off India’s east coast. The profit would have been much worse but for income from its massive cash stockpile.

The top-30 Sensex was little changed over the week, largely because the fall in the heavyweight Reliance stock was more or less balanced by gains in ITC, technology and cement stocks.

Foreign funds have bought Indian shares worth nearly $2.2 billion so far in October and this is likely to rise sharply in the coming weeks as global liquidity seeks better returns. Uncertainty about the central bank’s moves at its scheduled policy review on October 30 is also keeping a restraining hand on fresh portfolio investments.

With headline inflation spiking to a 10-month high, the Reserve Bank of India is unlikely to lower its policy rate — the repo rate — from 8 per cent, although Finance Minister P. Chidambaram has been pressing hard for a monetary easing to supplement a series of government measures to reduce subsidies and rein in widening deficits and also revive business confidence.

“We believe that current macro indicators — including inflation, the current account deficit, banks’ deposit growth and loan deposit ratios — do not really provide room for quick rate cuts,” Morgan Stanley economists Chetan Ahya and Upasana Chachra said in a report.

“Moreover, the drivers of inflation — such as government spending growth and rural wages — also do not indicate any quick potential improvement in the inflation outlook.”

— The writer is a journalist based in India.