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5/2/2013 9:00 PM Thursday
Head, Equity Research – Retail, Nirmal Bang Securities
The movement of food prices in the forthcoming period is likely to have a major bearing on headline inflation numbers as they continue to remain up and will be influenced by the upcoming monsoon season.
The Indian equity markets will be driven more by fundamentals in FY14. A decline in inflation and interest rates, reduction in crude prices, government initiative to revive infrastructure, revival in consumer demand and capex will be the major triggers for the markets to perform here on.
We have seen a sharp run-up in the Indian equity markets in the past 15 to 20 days driven by the lower inflation number for March 2013, a short covering and declining commodity prices. Overall, the earnings of the Indian corporates are under pressure but some initiatives by the government, reduction in interest rates and decline in commodity prices may aid improvement in their performance.
If we compare the Indian equity markets with other emerging markets, China is down by 3.34 per cent, Brazil is down by 2.46 per cent whereas Indonesia is up by 15.8 per cent, Thailand is up by 13.5 per cent and Philippines is up by 21.4 per cent as compared to India, which is down by 0.40 per cent. Before the recent run-up, the Indian markets were underperforming as compared to most other emerging markets. If the decline in inflation continues, then we may see further improvement in the equity markets.
Considering sectoral performance, we have seen a mixed bag of results in the IT pack with TCS and HCL reporting better-than-expected earnings, while Infosys and Wipro reported below-expected earnings. In the banking sphere, few private sector banks have reported results that are in line with market expectations. In the steel sector, however, there is some pressure on realisation (JSPL) while the Consumer Goods sector is facing a lower demand (Bata). Overall, the Q4 earnings of India Inc. are likely to be subdued.
The last year saw inflation holding up consistently and declining marginally in the few concluding months. The higher inflation was attributed to the rise in food and fuel costs. The March 2013 inflation figure going below six per cent has created some hope for reduction in interest rates by the RBI.
In the last few months, the government has taken a number of actions like increasing diesel price, railway freight, and power cost, eventually leading to an increase in inflation. On the other hand, a decline in commodity prices like metals, coal, oil etc. will help in reducing inflation. But the key variable will be the movement of food prices in the forthcoming period which is likely to have a major bearing on headline inflation numbers.
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