Indian equity market in three sessions this week is unlikely to scale new highs. According to market intelligence, operators, ETFs and hedge funds will allow a hiatus before the 2010-11 Q4 result announcements.

Big broking houses have signalled a correction ahead. The results may not justify current price levels of the key stocks. The international crude oil price movement, local interest rate and the inflation outlook are worrisome, analysts feel. Edelweiss feels that in the backdrop of rising input prices, higher interest rates and greater salaries, cost pressures will be the key ingredient to look for in this earnings season.

For April, the brokerage expects the Nifty to trade within a range of 5700-6100. “We expect some profit taking in the first half; upper end of the range should be tested in the second half,” Edelweiss said.

Motilal Oswal said: “In a year of significant events, macroeconomic concerns emerged in 2H-FY11, prominent among them being continued inflation and a big rise in oil prices. The government based its FY12 Budget projections on the assumption of a 9 per cent GDP growth, which appears challenging in the current environment.”

Its FY12 estimates suggest a Sensex EPS growth of 19 per cent to Rs 1,252, a marginal downgrade over the past two quarters. “If the current trend of rising commodity prices persists, the PAT mix will tilt in favour of global cyclical, rather than domestic, plays. This will drive down valuations of Indian equities. We believe attaining a new high is an uphill task, and markets holding at current levels in 1Q-FY12/1H-FY12 would be positive. As confidence improves in earnings growth and clarity emerges on the direction of oil prices, markets will look to move upwards.”

Some observers acknowledge that macroeconomic headwinds have been emphatic even though market moved up in recent weeks because of inflow from certain FIIs. There are concerns over disruption of the investment cycle adversely impacting FY12 GDP growth.

Kotak Securities says that disappointment in earnings or on future outlook may result in corresponding specific corrections. It expected 22.5 per cent revenue growth during the quarter excluding oil & gas companies. The brokerage, however, did not spell out its margin estimates.

In its opinion, if the market has to sustain the current levels and move up, it will need to have more confidence in the medium-to-long term growth rates of corporate India.

Sharekhan visualises auto sector's Q4 scenario of high sales growth and low margin. For EPC construction companies, it expects that despite a flat operating profit margin Y-o-Y, a higher interest cost will lead to a 14 per cent Y-o-Y growth in the profit after tax. BHEL's provisional results may have been much above its expectations on all fronts; it still remains cautious about others in the capital goods sector. It also notes that slower execution of infrastructure projects dented cement volume off-take in Q4.

“However, with the sharp increase in the cement prices (due to supply discipline) we believe the cement manufacturers will be able to meet cost inflation and the average EBDITA per tonne is unlikely to decline in FY2012,” Sharekhan concluded.

Edelweiss says that overall Q4-FY11 IT results are expected to be softer than earlier quarters, which may not lead to any earnings upgrade for the top-4 companies.

> jayanta_mallick@thehindu.co.in

Related Topics