A clear direction to emerge in the next few trading sessions
The market snapped its five-week winning streak and closed over 1% down this week on concerns about the slowdown, as highlighted by a slew of economic indicators, and a weak guidance by IT major Infosys on Friday. Headline inflation numbers for September, due on Monday, and earnings reports will drive the market next week.
The Sensex settled 263 points (1.39%) lower at 18,675 and the Nifty declined 71 points (1.23%) to close the week at 5,676. We may continue to see the weakness prevailing on the bourses. However, in case the Nifty manages to close above the previous day’s high in consecutive trading sessions for a few trading days we may see the trend reversing, but the probability of this happening is weak.
The market settled lower on the first trading day of the week on profit booking and weak global cues. The benchmarks closed with modest gains on Tuesday after remaining in the positive for the entire trading session. However, political concerns which emerged in the second half of trade saw the market paring part of its gains. Warning of a downgrade of India’s sovereign rating in the next two years by Standard & Poor’s (S&P) and European concerns led the market lower on Wednesday.
The announcement by the government approving direct transfer of urea subsidy and a positive opening of the European markets helped the domestic indices close in the green on Thursday. The bleak revenue outlook by Infosys played on investor sentiments resulting in the market closing in the negative on Friday.
In the sectoral arena, BSE Fast Moving Consumer Goods and BSE Healthcare (up 2% each) were the top gainers whereas BSE Realty (down4%) and BSE Oil & Gas (down 3%) ended up as the top losers.
The top Sensex gainers in the week were Sun Pharmaceutical Industries (up 5%), ITC (up 3%), Tata Steel, Sterlite Industries and Hindustan Unilever (up 2% each). BHEL (down 7%), Wipro, Hindalco Industries (down 6% each), Infosys (down 5%) and Reliance Industries (down 4%) were the main losers.
In the Nifty space, Sun Pharma, Jaiprakash Associates, UltraTech Cement (up 4% each), ITC and ACC (up 3% each) were the top performers. The losers were led by DLF (down 10%), Siemens (down 8%), BHEL (down 7%), Wipro and Hindalco (down 6% each).
There is a “one in three” chance of a downgrade of India’s sovereign rating to junk status in the next two years, according to ratings agency Standard & Poor's (S&P). Factors forcing a downgrade would be a drop in growth prospects, deterioration on the external front, worsening of the political climate and slow movement on fiscal reforms.
On the upside, especially given the slew of reform measures carried out by the government in the past three weeks, the outlook can be revised upwards to stable if the government succeeds in reducing fiscal deficit, improve the investment climate and revives growth, the agency added.
India's exports continued to decline for the fifth month, contracting 10.8% to $23.69 billion in September due to slowdown in the western economies. However, imports grew by 5% to $41.77 billion, leaving a trade deficit of $18 billion for the month.
Industrial growth, as measured by the Index of Industrial Production slowed to 2.7% in August due to poor show by the manufacturing sector and contraction in capital goods output. Commenting on the data, Prime Minister’s Economic Advisory Council chairman C Rangarajan said, “IIP numbers indicate there is some turnaround as far as manufacturing sector is concerned. I do expect in coming months the growth rate will further pick up...”
Among corporates, Infosys, India’s second-largest software services exporter, on Friday reported a 24% rise in second quarter profit at Rs2,369 crore but disappointed investors with its conservative revenue guidance. The company lowered its revenue growth guidance for the year ending 31 March 2013 to 17.3% at Rs 39,582 crore, from an earlier projection of 19.7% rise to Rs40,364 crore.
A healthy growth in the core net interest income and an uptick in retail advances pushed up HDFC Bank’s second quarter net profit by over 30% to Rs1,560 crore. The lender’s net interest income grew at a healthy 26.7% to Rs 3,731.7 crore, courtesy a 22.9% growth in advances. However, its other income was almost flat at Rs1,345 crore because of its mutual fund investments, and lower volumes coupled with squeezed margins on foreign exchange revenues.
On the international front, US stocks declined over 2% this week on global growth concerns. Top corporates like General Electric, IBM, Microsoft, Intel, Citigroup, McDonald’s and Coca-Cola are expected to announce their quarterly earnings next week.
In Europe, while the Spanish government is expected to seek a bailout from the European Central Bank’s European Stability Mechanism, the country has opposed the move as the bailout would mean that the nation would have to implement strict fiscal reforms.