The Hindu Business Line : Selling pressure likely to continue on Dalal Street

This week the market is likely to come under selling pressure. Global storm and local concerns are yet to play out fully on Dalal Street. However, substantial resistance would, perhaps, limit the intensity of the downward movement.

A historic turning point for Wall Street (and rest of the capital streets) has come and gone. Landscape has changed and will keep changing for some more time. Citigroup is shaken up. Lehman is gone. Bear Stearns is gone. Merrill Lynch has been acquired. AIG is nationalised.

According to Mr Vikram Pandit, Citigroup CEO: “Right now, we’ve got to deal with what’s going on today, how do we get out of it, how do we get to the other side… we still have a lot of challenges, but there will be enough people thinking about this, there will be enough dialogue on what is that financial services architecture that we want that’s probably the best answer to how we’re going to make sure that we have the ability to see the forest for the trees. Because the regulator architecture and the regulators have best ability to do that.”

Hazy picture

Global financial and capital markets may not be the same again.

In a state of fire-fighting, what will emerge after the fire is fully doused and the reconstruction takes place is not etched out in clear detail.

But it is sure Wall Street earthquake has taken its toll on Dalal Street and would continue to do so for some time to come.

Fall in commodity, particularly petroleum products and metal, prices has been factored in by the market to a great extent.

Dollar income, adverse impact of rupee’s movement against dollar (rupee has depreciated by around 8 per cent over the last one year) on cost of debt and margins, and fall in demand growth following higher interest rates had affected corporates in the first half of the financial year.

September quarter results would start trickling in from the next week.

Low expectation

Market has already lowered its expectation on revenue and earning growth. The general consensus is that a strong performance is unlikely to be repeated in the coming months due to the very high base of the last year.

IT sector, which would inaugurate the results season, would find it difficult to top a 30.8 per cent growth in August 2007 and a 20.9 per cent growth in September 2007 and may be forced lower their guidance. Sharekhan felt the revenue growth would be primarily driven by the depreciation of the rupee against the greenback, which is likely to prop up the top line growth by 4-4.5 per cent on a sequential basis. In dollar terms, however, the revenues of these companies are expected to grow in the range of 1.5-5 per cent on a sequential basis backed by a moderate volume growth and flat pricing. The other concern was dollar’s appreciation against pound and euro. Since IT companies under the US GAAP bill 25 to 30 per cent of their revenues in pound and euro, they would be impacted by 8.5 per cent and 9 per cent dollar appreciation against the euro and pound respectively during the last quarter.

For the pharmaceutical sector export revenue, which is around the half to the total, the weaker rupee would be a positive albeit in a limited way as most companies have hedged their outstanding receivables at around the Rs 41-42 level.

Domestic demand for manufacturing sector including that in capital goods sector may come under pressure in this quarter. However, the street expectation is that a falling commodity prices and a reduction in hawkish stance by the central bank could neutralise the pressure to an extent.

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

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