Markets to get cautious start; Infosys numbers to give direction

The Indian markets consolidated in the last session, though the start was good but the indices could not manage to hold the gains and closed with modest cut by the end. Today, is the big day for the markets as the second quarter earnings season will kick start with the earnings announcements of the IT bellwether Infosys. The street is expecting a 10% jump in company’s quarter-on-quarter profit for the second quarter of FY12. The traders will be watching the guidance for the next quarter and the year in the backdrop of European crisis. Also the IIP numbers will be announced. Today, the start is likely to be cautious, but the traders may take confidence with Prime Minister Manmohan Singh’s statement that Indian economy will achieve near 8 percent growth in the current financial year despite the global slowdown, while lowering inflation remains a challenge in the short term. Meanwhile, export oriented companies are likely to cheer up with RBI’s announcement of 2% interest subsidy on rupee export credit to the labour-oriented and small scale sectors.Exporters of handicrafts, handlooms and carpets will be eligible for the interest subvention to be available up to 31 March 2012, while exporters in the small and medium enterprises across all the sectors would also be entitled for cheaper bank credit, subject to a minimum interest rate of 7%. On the same time the telecom companies are likely to be under pressure after a TRAI show cause notice. The Telecom Regulatory Authority of India (Trai) has decided to issue show cause notices to leading telecom players, Vodafone, Airtel and Idea, asking them why they should not be refrained from offering 3G services in circles where they do not have spectrum licence.

The US markets just after a day of big rally made a mixed closing on Tuesday, the traders remained cautious ahead of a Slovakian vote; all other eurozone member states have ratified a plan to increase the size and powers of the European Financial Stability Facility bailout fund. The deliberations dragged out past the close of US trading and finally Parliament rejected the measure. The Asian markets have made a mixed start with some of the indices showing impact of development in Europe and concern that debt crisis may worsen.

Back home, Indian equity indices which showcased awe-inspiring performances in last two back to back sessions, went on to consolidate in Tuesday’s session by settling just below the neutral line with marginal losses. It turned out to be an extremely volatile session for the bourses as they lost a great deal from the high point of the day amid mounting concerns that the lingering debt crisis in Europe and swiftly slowing down economic activity not only in developed economies like US but also in developing economies like China and India may dent the profitability of local companies. Furthermore the sanguinity in the local markets also got petered out after investors started to square off hefty positions from the information technology bellwether Infosys ahead of its quarterly earnings announcement which will officially mark the opening of July-September quarterly earnings season. Hefty profit booking was evident in every component on the IT index and majors like TCS, Wipro and HCL Tech got pounded in the range of 2-3% amid expectations that the earnings and margins of the companies have been adversely impacted by the recent developments on both sides of the Atlantic. Earlier on Dalal Street, the benchmarks got a gap up opening as investors were largely influenced by the euphoric mood prevailing in Asian markets. The frontline indices in no time surged to intraday highs but then started the gradual slide for the local markets. The psychological 5,000 (Nifty) and 16,600 (Sensex) levels were proving as good support levels for the key gauges in afternoon trades however, the indices drifted even below those levels. Some choppy moves emerged in the dying moments of trade as the benchmarks see-sawed around the neutral line to eventually settle in the negative territory and break the two session gaining steak. On the BSE sectoral space, investors piled up hefty positions in the Consumer Durables counter which rocketed by over a percent as investors remained optimistic that the Consumer Durables companies will clock higher sales as the festive season is around the corner. The Metal, rate sensitive - Auto and Capital Goods pockets too gained from strength to strength and climbed by a percent each. On the flipside, the IT and TECk indices remained the top laggards as they went home with large cuts of 2.70% and 1.44% respectively. Also the Oil & Gas and FMCG pockets slipped by the end of the session and settled with about half a percent losses. Finally, the BSE Sensex lost 20.76 points or 0.13% to settle at 16,536.47, while the S&P CNX Nifty declined by 5.25 points or 0.11% to close at 4,974.35.

The US markets made a mixed closing on Tuesday amid lot of volatility, with investors unwilling to make big bets ahead of an unofficial start to the earnings season and Slovakia’s vote on the euro zone’s bailout fund. The day was marked by caution as investors were watching developments in Slovakia, where lawmakers delayed a vote on the expanded European Financial Stability Facility. Slovakian parliament rejected the measure to expand the 440 billion euros rescue fund. Of the 124 members only 55 backed the measure, far less than required majority of 76. The rejection also led the fall of the current four member coalition government.  The parliament, however, is still expected to approve the bailout fund later this week. Alcoa, the biggest US aluminum producer, became the first company of the Dow to report results for the third quarter. It announced a quarterly profit which was short of estimates.

Meanwhile, European Commission President Jose Barroso stated that he will present proposals on the recapitalization of banks as Europe’s leaders struggle to tackle the region’s debt crisis. Besides, Greece stated inspectors from troika completed their mission and approved the release of sixth tranche of aid. Spanish banks including Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA had their ratings cut by S&P, which cited dimming growth prospects and heightened market turbulence. The Dow Jones industrial average lost 16.88 points, or 0.15 percent, to 11,416.30. The Standard and Poor’s 500 closed higher by 0.65 points, or 0.05 percent, to 1,195.54, while the Nasdaq composite gained 16.98 points, or 0.66 percent, to 2,583.03.

Crude prices extended their gaining streak for the fifth straight day on Tuesday, though the trade remained choppy and after a recovery along with the equities, the prices once turned negative during the day ahead of the much awaited news out of Slovakia. Traders feared a rejection of the bailout expansion by Slovakia, the last of the 17 member nations of the euro zone to vote on the issue.

Meanwhile, there was news that US authorities broke up an alleged plot to bomb Israeli and Saudi Arabian embassies in Washington, however Iran rejected US allegations that two Iranians planned to assassinate the Saudi envoy to Washington.

Benchmark crude for November delivery rose 40 cents, or 0.47 percent, to settle at $85.81 a barrel, after trading in a range from $83.97 to $86.64 on the New York Mercantile Exchange. In London, Brent crude for November delivery, gaining $1.78 settled at $110.73 a barrel on the ICE.