Earnings season, macro data to drive equity markets

Mumbai, Oct 4 (IANS) The quarterly results season and crucial global financial data points, coupled with fears of an upcoming US rate hike, might spook investors and flare up volatility in the Indian equity markets during the weekly trade commencing from October 5.

Market watchers assert that the fears of a US rate hike and stumbling Asian markets might force Indian equities to cede the gains made during the recent rally on the back of a substantial rate cut by the Reserve Bank of India (RBI).

However, healthy quarterly results, backed by optimistic guidance, can restore both domestic and foreign investors’ confidence in India’s strong economic fundamentals.

“With the Indian economy now moving to the high festive demand season, coupled with the quarterly results season, this will be in focus over the next few weeks,” Sanjay Sachdev, chairman of ZyFin Holdings, told IANS.

The second quarter results season is scheduled to start from October 5. Infosys is expected to be the first blue chip to come out with its results on October 10.

Dipesn Shah, head of private client group research with Kotak Securities, predicted that stock-specific activity will be seen based on quarterly results and the accompanying management commentary.

Sector-wise, Sachdev cited that recent moves in IT stocks indicated a clear bottoming out for the markets, even more so if financials and consumer discretionary segments do a follow-up rally.

“If China stabilises, it could give a positive momentum to other sectors like metals and realty – leading to a better than expected broad-based rally,” Sachdev added.

Analysts pointed out that important triggers for the market will be cues on a US rate hike decision. This can adversely impact foreign fund inflows into Indian equities.

“FII (foreign institutional investors) selling was the highest in five years for the month of September. We expect this pressure to continue as global growth continues to remain sluggish,” Vaibhav Agrawal, vice president, research, Angel Broking, told IANS.

Data with the National Securities Depository Limited (NSDL) shows that foreign portfolio investors (FPIs) withdrew Rs.5,783.63 crore or $873.55 million from the equity and debt markets during September 2015.

“Investors would watch out for US employment data and changes in the non-farm payrolls data for further cues on the Fed rate hike,” Agrawal said.

Key economic data released late on Friday revealed a slowdown in the US job market due to global economic uncertainty.

Last month, the US economy added just 142,000 jobs and the unemployment rate remained at a seven-year low of 5.1 percent.

The US had added 173,000 jobs in August.

These data points are expected to impact the FOMC (Federal Open Market Committee) meet scheduled for October 27-28. This will give further clues, as to when the rate hike might take place.

The jobs data should also deter the US Fed, which had last raised rates in 2006, from again doing so.

Furthermore, the data assumes significance as on Thursday, Fed chair Janet Yellen had said that the US economy appears more solid and argued in favour of a hike in rates this year.

With higher interest rates in the US, the FPIs (Foreign Portfolio Investors) are expected to be led away from emerging markets such as India.

Apart from the US, Asian markets will play a predominant factor in influencing the markets here.

Expectations of a Japanese monetary and fiscal stimulus and up-tick in Chinese consumer sentiment may stabilise the East Asian markets in the short run.

“Asian sentiments are likely to be guided by how expectations of Japanese stimulus pan out,” Anand James, co-head technical research desk, Geojit BNP Paribas, told IANS.

“More importantly, clarity on the impact of diesel-gate on German economy, and other allied industries and financial institutions across the globe is also expected in the next week. This could influence global stock markets,” James added.

Last week, the markets made healthy gains of over one percent on the back of a massive monetary easing, coupled with a major resolution of tax disputes and the strengthening rupee value.

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