The Hindu Business Line : Market View

Interestingly when we look back just six months ago EPS earnings forecast for the Sensex for FY07 was around the 640 level. Thus we have moved on 6-7 per cent in earnings estimates in the period of six months. If this trend continues, earnings are likely to be revised upwards by 10-12 per cent by end of FY07 from the initial estimates of 640. This leaves us with a figure of approximately 700, which equates to 28 per cent EPS growth for 2007.

This also tells us that in a bull market, stock-broking analysts will inevitably start the year with a conservative forecast for the earnings and then gradually, over the year, as greater clarity occurs, will look to revise upwards. Thus the statement that refers to company earnings just beating the earning expectations of brokers should be taken with caution. Effectively, earnings have beaten forecasts substantially when you take a year beginning position for FY07 of 640.

OptiMix View and Outlook

The recovery in stock prices since June has been led by and largely been in the large-cap space. Mid- and small-cap stocks have staged a rebound from mid-August; they are, however, still 10 per cent shy of peak levels of April this year. This is in sharp contrast to the trends in large-cap stocks with the Nifty and Sensex touching new highs in October.

There appears a dichotomy between the broad-based strength in India Inc's earnings card and the concentrated nature of the stock market recovery. This may lead to a greater degree of interest in the large-cap space as compared to the trends over the past six months.

Sundaram BNP Paribas Mutual

With inflation in the RBI target of 5-5.5 per cent and demand from banks and insurance companies could help market remain stable in near-term. However, strong credit growth is likely to put pressure on short-term rates in the economy. The RBI's ability to manage inflationary pressures and liquidity to support growth will have to be closely watched. With global factors broadly under control, domestic factors take the centre-stage.

DWS Investments

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