Hope for sustainability prevails

Mumbai: Quarterly company earnings and national elections will set the trend in the coming weeks for Indian shares, which have rebounded more than a third from a 2009 low in early March on the back of a revival in foreign portfolio investment.

Blue-chip outsourcer Infosys Technologies, which is also listed on the US Nasdaq, kicks off the reporting season on Wednesday. More than the results, fund managers will be looking to the bellwether's forecast for the June quarter and the new financial year.

Indian software services companies get over three-quarters of their revenue from exports and there has been widespread concern about their outlook because of the recession in their markets like the US and Europe.

"Expectations are very much muted due to the global economic problems," said equity trader Ashish Dalal. "Any positive upside will be a bonus."

Political concerns will also be on the radar as voting for general elections in the world's largest democracy begins on Thursday. The polling, which is being done in phases across the country, runs till May 13 and the results are due on May 16.

No party or group is expected to get a majority on its own, paving the way for a loose coalition. In a survey released on Friday, the Times of India newspaper forecast the main Congress party and its allies to win 198 seats, followed by the Bharatiya Janata Party-led group with 176, the Third Front comprising the communists and regional parties 109 and independents and minor parties 60.

"The election outcome is a big risk for the market going forward," said Dalal. "Any whiff of political instability could rattle investors and cause a stampede of outflows."

The top-30 Sensex rose 4.4 per cent last week to 10,803.86, its strongest close since mid-October last year and up over 34 per cent from its 2009 low on March 6. The index has gained 12.9 per cent over six days in a row - its longest winning streak since a year ago - and took the rise to 11 per cent for the year after plunging 52 per cent in 2008.

Foreign funds bought shares worth $400 million (Dh1.47 billion) in the first eight days of April, maintaining the pace in the latter half of March. The inflow also helped the rupee strengthen to around Rs50 against the dollar, well off the all-time low of Rs52.2 struck in early March.

Manishi Raychaudhuri at BNP Paribas said quarterly earnings and the general elections will be the critical factors for the stock market in April and May.

"While election outcomes seem to be more intractable, we believe the results season is also important, especially as we expect a sharp earnings decline in sectors that have outperformed the most in the recent rally," the analyst said in a note.

Profits for 65 companies that BNP covers may drop 30 per cent from a year earlier, with metals and mining, real estate, financials, automobiles and engineering leading the way, Raychaudhuri said.

Information technology, utilities and telecommunications will be the only industries to show an increase in earnings, the analyst said.

Dalal said the possibility of a rate cut could underpin the market after data showed factory output in February fell 1.2 per cent, the biggest drop in more than 14 years, and inflation remained well below 1 per cent for the fourth week.

The Reserve Bank of India Governor D. Subbarao, who has cut borrowing costs five times since mid-October, said last week policy will be tailored to arrest a steeper-than-estimated moderation in growth.

The central bank is scheduled to review policy on April 21, but some analysts believe it could lower its key short-term lending rate by up to 50 basis points from five per cent now.

- The writer is a journalist based in India.

Currency: Value fluctuations

India's foreign-exchange reserves rose by $2.83 billion (Dh10.38 billion) in the week to April 3, according to the data posted on web site of the Reserve Bank of India.

Foreign-currency assets increased by $3 billion to $244.6 billion, while the nation's gold reserves fell $169 million to $9.58 billion, the central bank said.

India's special drawing rights with the International Monetary Fund were unchanged at $1 million and its reserves with the IMF increased $3 million to $985 million.

The change in foreign-currency assets was partly caused by fluctuations in the value of the dollar against the euro, yen and other currencies during the period, the central bank said. India's foreign-exchange reserves have fallen $56.7 billion in the past year, the bank said.

The reserves comprise foreign currencies, gold and special drawing rights with the IMF.

- Bloomberg News