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Paul Noronha

Optimism: Stockbrokers were happy as the New Year began on hopeful note. Traders, however, are sceptical about the sustainability of the current momentum. –

The second economic booster package has been rolled out on Friday. Theoretically, it should increase spending and demand for borrowing. It should also have a positive impact on the market sentiment this week, at least on the opening. Trading activity is on the rise even though fundamentals have not changed. More indications are available to suggest that globally, risk appetite for different asset classes are increasing.

It is clear that the third quarter results would be crucial for taking a directional call on the market; the second stimulus package would go a long way to judge the navigability in the troubled water ahead.

If it is assumed that the negatives such as fall in sales and margins have already been efficiently factored in the stocks’ prices, the corporate guidance and outlook coupled with indications on policy engineered positives would help in making investment decisions. On the whole, the key indices are likely to remain range-bound this week.

Apparently, banks, particularly the PSU banks, metals manufacturers, infrastructure-related companies and commercial vehicle makers should sport an improved forward outlook in the backdrop of the two packages.

Real estate players and passenger carmakers should also see some improvement in sentiment. But on the ground, things may not be as smooth as one would like. Anecdotal evidences suggest that at retail level, passenger car or residential unit prices are again off discounts in January.

Religare has come up with an interesting argument. It said the 10-year bond yield has now come down to 5.07 per cent and existing home loan rate is 11 per cent plus. The last time in 2004 when 10-year bond yield was 5 per cent, the home loan rate had dipped to 7.5 per cent. It felt that there still persists a problem of pricing the interest rate and of liquidity flow to people, who can make a difference in consumption.

Though results season technically starts this week, the benchmark results would begin to flow in from the next week. IT sector would be in the forefront in announcing their outlook.

The market expects that blue-chip IT companies would report turnover growth between 6 and 12 per cent in rupee terms.

One brokerage, KR Choksey, said Infosys Technologies, Tata Consultancy Services and Satyam Computer Services were expected to show a margin improvement of 50 to 75 basis points in the third quarter largely because of the rupee’s depreciation against the dollar. In case of Wipro, it apprehended approximately a 15-basis-point decline in operating profit margin on account of the full quarter impact of the offshore wage hike given in the previous quarter effective from August 2008 and the salary hike given to the business process outsourcing staff effective from October 2008.

For HCL Technologies, it estimated a drop in OPM by around 10 basis points mainly on account of the full quarter impact of the acquired lower-margin Liberata Financial Services and Control Point Solutions. These acquisitions were made in the previous quarter. It also factored in the partial impact of the Axon acquisition in the third quarter.

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

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