Equities are likely to shed some value this week owing to profit-taking ahead of announcements of the second quarter financial performance by companies. This week the market remains closed on Tuesday on account of Gandhi Jayanti. Traders and investors will prefer to move into cash to pick performing companies’ stocks, as the results season begins in the second week of October.

However, with the Government standing firm on reform initiatives, the market will remain at elevated levels.

Prime Minister Manmohan Singh has defended the recent economic reforms and said there will be no going back on any of themeasures initiated in the last two weeks. “We will do what is good for the country... reforms are not one-off process,” he said.

The Government’s commitment to reform was cheered by foreign institutional investors. FIIs were net buyers to the tune of Rs 19,261.50 crore in September after purchasing shares worth net Rs 10,803.90 crore in August. So far in 2012, they bought shares worth net Rs 82,331 crore, a SEBI data revealed. However, domestic investors preferred to book profits.

“Indian markets have rallied 21 per cent YTD but still is trading at 13.8x FY-14E, which is at 7 per cent discount to long-term average. Even on a relative basis, India is at 30 per cent premium to EMs [emerging markets] which is not far from the historical average of 27 per cent. Implied GDP growth being built in is 6.5 per cent, which is below the consensus estimate for FY14 of 6.9 per cent. Recent initiatives by the Government have made it possible for the GDP growth to return to around 7 per cent levels and this optimism has driven our uptick in target multiple from 13.8x to 15x,” said Macquarie in its recent report, which raised Nifty target to 6,600.

However, now all eyes would be on the Kelkar Committee report that outlined a fiscal consolidation roadmap. The report suggested that the fiscal deficit should narrow from 5.2 per cent of GDP in FY-13 to 4.6 per cent in FY-14 and 3.9 per cent in FY-15 through better tax collection, disinvestment, pruning subsidies and lower plan expenditure.

Though some of the measures recommended by the committee have already been implemented by the Government, marketmen expect others such as decontrol of sugar and urea price hike to be announced soon.

Lack of cues will also keep the stock markets in a range, as the Hong Kong stock market is closed on Monday and Tuesday while the mainland Chinese markets will remain closed for the entire next week.

> badrinarayanan.ks@ thehindu.co.in

Related Topics
comment COMMENT NOW