The Hindu Business Line : Dalal Street is looking forward to reassurance on long-term positives

Crucial week: A file picture capturing a stockbroker’s nervous moments. Infosys’ FY and quarterly financial performance would be out on Tuesday (April 15), and marketmen hope a clear trend would emerge for trading after that. –

Roughly a five-year long bull-run has never seen such a testing quarter as it witnessed in the three months between January-March this year. This corrective period is, like any other, marked by drop in liquidity and valuations. But what stands out most is the fact that at the end of the quarter, there is hardly a convincing signal to judge whether it is over yet.

The convergence of economic developments, political events, financial issues typical of the equity market and corporate fundamentals broadly continues to suggest an uncertainty and a need to respond to a major intrinsic transformation in the overall scenario.

The market, in the short-term perspective, has factored in unfolding overseas and domestic negatives as they emerged; in some cases, perhaps, a little more than warranted. But the extent of influences of the negatives is still lie in the realm of unknown in most cases. On the other hand, the market is looking forward to reassurance on the long-term positives. At an aggregate level, the corrective process appears to have been contained within a range for the time being.

In the next two weeks, market would get more opportunities to price in its apprehensions in terms of corporate results, guidance and interest rate regime. This week, Infosys numbers are likely to indicate, above all, how it fared in the currency risk management. If in the first three quarters sharp rise in rupee (around 12 per cent) against the greenback was the concern, the two per cent fall in rupee in the fourth quarter was equally challenging to handle for an Indian corporate, largely dependent on dollar income.

If market is assured that the currency risk management at Infosys is in order, it is likely to have a psychologically positive effect on the pricing. The indications regarding margin, volumes and geographical spread would also go a long way to help the market in forming a firmer view about the uncertain terrain ahead in the FY 2009 for the IT sector.

However, the market’s apprehension of more shocks from the currency derivatives front by the listed entities, irrespective of reporting obligation, may continue to linger at least for another quarter.

Market may be dogged by worries about inflation, liquidity, interest rate and growth too for the next couple of quarters.

Latest weekly inflation figure of 7.41 per cent, higher than expected, came in as a surprise. So was RBI’s apparent silence. Market had anticipated that the central bank might rollout a liquidity sucking measure before the scheduled policy announcement on April 29.

The central bank’s apparent calm and the Government’s attempts at controlling inflation through fiscal measures did not help in allying fears and reducing uncertainty.

Apart from the commodity prices, rising food prices are no less worrisome for the government (an untimely rain in southern India had reportedly affected paddy crop).

But the 8.6 per cent industrial growth in February, however, gave RBI an elbow room in a difficult situation in balancing growth and money supply.

(Responses may be sent to jayanta_mallick@thehindu.co.in)

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