Equities to take cues from Bernanke, Infosys

After lacklustre trading last week, equity investors have set their eyes on a host of global and domestic events that would drive the markets. Key among those would be US Federal Reserve Chairman Ben Bernanke’s speech late on Monday evening, fourth-quarter earnings report by information technology (IT) major Infosys Technologies and India's industrial production data during the week.

While there is a consensus that equity markets would witness a soft opening on Monday due to disappointing jobs data in the US last Friday, there is hope of significant announcements by Bernanke.

Last week, the Bombay Stock Exchange’s (BSE) benchmark, the Sensex, rose 82 points to end at 17,486 on buying mainly in consumer durables, capital goods, power and banking stocks. The broader S&P CNX Nifty of the National Stock Exchange rose 27 points to settle at 5,322. Trading was low due to two market holidays in a row and a cautious approach of investors ahead of the earnings season.

“Although the Fed had denied another round of quantitative easing last Friday, the job market report in the US was likely to revive these hopes. It is believed the US would resort to another round of large-scale bond purchases by the Fed. Bernanke’s speech would be crucial in this context,” said Ajay Pandey, head of the institutional desk at Mumbai based ITI Securities.

However, foreign investors believe the days of easy gains in equity markets, including India, is a distant dream.

“After strong rises in the March quarter, the easy gains are likely behind us. Europe is still a potential source of mishaps, given upcoming elections in Greece and France, budget problems in Spain, austerity fatigue and recession,” said Shane Oliver, head of investment strategy at Sydney-based AMP Capital Investors, which manages about $100 billion.

“Next year’s fiscal drag equal to 3.5 per cent of GDP in the US may worry investors, as could a soft patch in economic data after the strong patch of late and China hard landing fears remain.”

The US economy created only 120,000 jobs in March, well below market expectations. Hiring failed to top 200,000 for the first time since November. The unemployment rate fell to its lowest level since January 2009, but only as people dropped out of the labour force, news websites in the US reported.

Bernanke will talk on fostering financial stability at a conference organised by the Federal Reserve Bank of Atlanta in Stone Mountain, Georgia. Analysts at German financial major Deutsche Bank are expecting that he will comment on the latest US employment data.

Analysts are expecting the country’s four top IT companies, Tata Consultancy Services, Infosys Technologies, Wipro and HCL Technologies to report weak numbers in terms of revenues for the quarter ended March 2012. According to them, Infosys and TCS are likely to report a sequential fall in net profits, whereas HCL Technologies is expected to report a flat performance. Wipro is likely to report sequential growth, mainly on the back of other incomes.

Infosys will kick off results on April 13, with its guidance setting the tone for sector performance.

Mumbai-based financial services firm Edelweiss in its India strategy report has stated, “On absolute valuations, markets are below historical average. Expect earnings upgrade in H2 (second half of this year), leading to Sensex earnings per share of Rs 1,280-1,300 in the financial year 2013.”