Mumbai: Shares in India should get off to a stronger start this week, underpinned by concerted US action to help tackle its recession-hit economy and resuscitate its ailing banks, but trading will be choppy as quarterly earnings come in.
Investors will also be betting that Barack Obama, who takes office on Tuesday, will focus on the financial problems that has stricken the US and world economies and sent markets tumbling over the past many months.
“There’s cautious optimism that Obama would kick off his term with a bang,” said equity trader Kevin D’Souza. “It will set the tone for markets across the world.”
This was visible on Friday when shares pulled out of a nosedive after the US senate voted to allow the release of $350 billion sought by President-elect Obama to bail out the financial sector.
The top-30 Sensex bounced 3.1 per cent on Friday to 9,323.59, also bolstered by the US rescue of Bank of America, and helped pare losses to 0.9 per cent for the week after sliding 5.5 per cent in the week before.
There is also expectation that the new US administration will expand the business ties with India, from collaborating to build civilian nuclear plants to more high-technology ventures, and facilitate large investments in the country.
“Our economy is slowing, but we still have one of the world’s fastest growth rates,” D’Souza said.
“We also possess a huge market for a lot of products.” On Friday, Larsen & Toubro, the country’s biggest construction and engineering company, signed a preliminary deal with Westinghouse Electric, a unit of Japan’s Toshiba, to build 1,000 megawatt light water reactors in India.
“India is emerging as the third largest market for nuclear power after the United States and China,” Meena Mutyala, vice president for India strategy at Westinghouse Electric said.
A senior finance ministry official said on Friday the economy would grow 7-7.5 per cent in 2008-09, higher than private economists who have trimmed their forecast to below seven per cent. The rate is slower than the nine per cent or more expansion in the previous three years.
In comparison, major economies like the US, Japan and Europe are fighting a full-blown recession.
Quarterly results could be a spoiler this week. Reliance Industries, India’s largest private sector company, is expected to report on Thursday quarterly profit dropped for the first time in three years.
The company gets most of its revenue from its massive refinery in Jamnagar, Gujarat, and a slump in world oil prices would have squeezed its margins.
Other big results this week include leading mobile operators Bharti Airtel and Reliance Communications; State Bank of India and ICICI Bank, software firm Wipro, drugmakers Dr Reddy’s Laboratories and Ranbaxy, consumer goods giant Hindustan Unilever and utilities Reliance Infrastructure, Reliance Power and NTPC.
Last week, Infosys Technologies beat market forecasts with profit rising a third, but bigger rival Tata Consultancy posted a modest 1.6 per cent gain and said the business outlook was difficult.
Both companies get more than two-thirds of their revenue from overseas. “Companies are expecting a subdued performance in 2009 with lower earnings in the quarters ahead, as is evident from the over 22 per cent year-on-year drop in the advance corporate tax collections in the third quarter of FY2009,” Sharekhan Research said in a report.
However, as expectations about quarterly earnings are so low any pleasant surprises could spur the market, traders said.
Last week, data showed India’s industrial output unexpectedly rebounded 2.4 per cent in November, beating market forecasts for a 1 per cent decline. In October, the output had shrunk 0.3 per cent, its first annual drop in 15 years.
Still, the industrial output growth has slowed from rates above 10 per cent in 2006 and the first half of 2007 and the figure for December may not be encouraging. Automobile makers to textile producers have seen their sales plummeting as the global financial crunch snuffed out demand.
“The November data may be a temporary blip,” said equity strategist V. Venugopal. “It will not change the direction of falling interest rates.”
The Reserve Bank of India has slashed itsmain short-term interest rate by 350 basis points to 5.5 per cent since mid-October.
The writer is a journalist based in India.