Inflation, bond sales in euro zone to guide markets

As developments in India and Europe may keep investors on guard, they await IIP data, Infosys numbers.

Three “I”s at home — Inflation, Index of Industrial Production (IIP) and Infosys numbers — and the outcome of Italian and Spanish government bond sales would largely determine the stock market movement next week.

The Bombay Stock Exchange (BSE) benchmark, the Sensex, closed 19 points lower at 15,848.80 in a special trading session on Saturday. The 50-stock Nifty index of the National Stock Exchange (NSE) closed down 7.20 points, at 4,746.90.

Most experts believe there is limited upside for the benchmark indices in the short term, as developments in India and Europe are likely to keep investors on their guard.

“On the domestic front, inflation data for December, IIP numbers and the Infosys results would be among the key things to watch out for next week,” said Alex Mathews, head - technical and derivatives research, Geojit BNP Paribas Financial Services. “If the Nifty breaks below 4,700 level, it can go down to 4,600-4,575. On the upside, there is huge selling pressure in the 4,800 - 4,840 zone,” he added.

IT bellwether Infosys would kick start third-quarter earnings season on Thursday. In the backdrop of a perceptible slowdown in the macro environment, brokerage firm Edelweiss estimates just 3.3 per cent year-over-year (y-o-y) earnings growth for the Sensex in the third quarter of this financial year on revenue growth of 20.5 per cent.

Globally, investors would keenly watch the outcome of Italian and Spanish government bond sales next week. France, Greece and Germany are also scheduled to sell bonds next week. The meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel on Monday would also give an idea to investors about steps they may take to resolve the euro zone debt crisis.

“The fault line which has been the cause of the European crisis, itself a nasty mixture of both sovereign debt crisis and banking crisis, still festers,” said Christopher Wood, equity strategist at CLSA Asia Pacific Markets, in his “Greed & Fear” weekly newsletter. “That is, of course, the unsustainable combination of monetary union without fiscal union. So long as this is the case, there remains the likelihood of more euro-tremors and potentially a “euroquake”, to which risk assets globally will continue to be correlated," he added.

In the US, aluminum major Alcoa is expected to report its quarterly results tomorrow, marking unofficial start of the earning season. Data on US retail sales and consumer sentiment will also give an idea to investors about the recovery in world’s largest economy.

Recent data in the US suggest that the economy is gaining strength. US employers added 200,000 workers to payrolls in December and unemployment rate fell to 8.5 per cent, the lowest since Fabruary 2009, data on Friday had showed.