Wednesday, December 11, 2019
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Range-bound movement likely in Indian shares

Shares in India are expected to stay range-bound in the coming week with lower-than-expected rise in US jobs data helping the market hold up on hopes for foreign portfolio inflows, while wobbly growth in the subcontinent remains a troubling factor over the near term.

Investor focus will be on inflation data, the decisive factor that would provide cues on the direction of borrowing costs. The consumer price index for January is due on Wednesday, followed by the wholesale price index two days later. The central bank had raised interest rates in January for the third time in five months, citing high price pressures.

The top-30 Sensex notched minor gains for four consecutive days to Friday but ended the week down 0.7 per cent, its second weekly loss in a row. The broader 50-share Nifty index shed 0.4 per cent. Heavy selling by foreign funds, especially exchange traded funds or ETFs because of redemption pressures, have eased off, however, and renewed support has emerged after both the indices dropped to their 200-day moving average.

Provisional stock exchange and regulatory figures show foreign funds bought $1.7 million (Dh6.24 million) of shares on Thursday after dumping more than $540 million in the previous five days.

“Expect more sideways movements as we go forward, indicating a lack of conviction,” said chartist Mukul Dave. “There are no clear triggers to pull the market either way. So, don’t expect a runaway rise or fall, it’ll be treading water.”

Quarterly earnings from top companies such as Tata Motors and Tata Steel, which release their figures on Monday and Tuesday respectively, will also set the tone for the market. Both the companies are expected to gain from their overseas operations — which provide the bulk of their revenue.

In a sign of upbeat mood shares in Tata Steel, whose Europe-based Corus unit contributes about three-quarters of the company’s total capacity, rallied 6.4 per cent on Friday after Arcelor Mittal announced a higher-than-expected operating profit of $1.9 billion for the December quarter.

For Tata Motors, the marquee Jaguar and Land Rover unit it acquired from Ford Motors some years ago has been the company’s saviour, helping tide over the sluggish domestic market.

Investors will also be watching results from State Bank of India, the country’s largest lender that releases on Friday, with the focus on its bad loans portfolio. Non-performing assets of banks in India are on the rise as borrowers, particularly companies such as Kingfisher Airlines, struggle to stay afloat.

Other big earnings in the coming week include energy explorer Oil and Natural Gas Corp, drug makers Dr. Reddy’s Lab and Cipla and state-run oil refiners Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation. Coal India, the country’s biggest coal producer, mining company NMDC Ltd and tyre maker Apollo Tyres are also set to announce their results.

After the market closed on Friday, the Statistics Ministry forecast economic growth in the current financial year that ends on March 31 at 4.9 per cent, the second weakest pace in 10 years. Manufacturing output could contract 0.2 per cent and mining shrink 1.9 per cent, while financing, insurance and real estate services are seen expanding 11.2 per cent, it said.

The data, which came on the heels of a cut in the 2012-13 growth to 4.5 per cent from earlier estimates of 5 per cent, would have looked worse but for the statistical support from the previous year’s revision.

“Had last year’s figures not been revised, GDP growth for 2013-14 would have been even lower at 4.4 per cent,” CRISIL Ratings, an affiliate of Standard & Poor’s, said in a note.

“However, the full year figures for 2013-14 suggest that growth in the second half of the fiscal would have improved to around 5.2 per cent from 4.6 per cent in the first half.”

Finance Minister P. Chidambaram, who had projected GDP growth of 6.1 to 6.7 per cent in his 2013-14 annual budget but recently lowered the estimates to about 5 per cent, put up a brace face. “We had anticipated that growth in the second half will improve and I am happy that our estimate has come true,” he said.

All said the growth data, which have halved from more than 9 per cent until three years ago, could make it difficult for the Congress party-led coalition, which faces an uphill task in general elections due by May with opinion polls indicating a rout for the alliance. To lessen the blow Chidambaram is expected to announce a cut in duties and provide incentives for manufacturing in an interim budget later this month.

There is little doubt that investors, including the big boys of global funds, are holding back because of the uncertainties about the outcome of coming elections. Although the opposition Bharatiya Janata Party (BJP)-led alliance is widely seen by opinion polls as the front-runner, the business-friendly group faces challenge from many regional satraps to win a clear majority.

“If I knew with confidence we would have a decisive government, India would be at the top,” Jim O’Neill, former chairman of Goldman Sachs Asset Management Co, told the Mint newspaper.

“When we get to the elections it is going to be really interesting but my advice until then is: wait and see.”

O’Neill, who coined the emerging market term BRIC for Brazil, Russia, India and China, added: “If you could get an effective government, which could make strong positive leadership decisions, this could be a fantastic year for India. If you get a very complex coalition with no leadership, then India could have problems.”

The writer is a journalist based in India