At Crossroads

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: The equity markets ended the week on a negative note even when there were reasons to cheer. While the country’s largest corporate entity Reliance Industries announced a bonus issue after 12 years, Infosys, the second largest IT firm, guided better earnings.

So when with such good news around, why would the markets be suspicious? This is a question that boggles both investors and traders at the moment. And there are different views coming across at the same time, hence the market, unless there is a disruption in the current inflows trend, is expected to remain undecided in the next couple of weeks. At least, till the results picture becomes clear.

While delivering a lecture at an event, Rakesh Jhunjhunwala said the current big bull and the investor are the most watched out for in India. If you see the formation of the indices, all the stocks are going up. (There are) minor corrections at every point. You cannot have this kind of a rise...(a) peak without burst. I think the burst will come within one or two months.” In the same breath he quickly covered his position by saying, “I have a right to be wrong and I may change my opinion very fast.” This clearly indicates the level of uncertainty that the markets are in at the moment.

They are at the crossroads at the moment waiting for some signal to emerge before a direction is decisively taken. The first level of momentum, after the March 2009 fall, has been achieved, indices have doubled. Amongst the differing views, many would reckon that in the intermediate, which is in the next three to four months, the markets would tend to correct. Despite that the outlook on earnings is set to remain strong.

Earnings and valuations

Analysts at Bank of America Merrill Lynch reckon, “We believe the earnings season for quarter ended September 30, 2009 will be good.” They believe that, after excluding metal companies from those listed on the Sensex, the operational profit or EBIDTA is set to grow by around 20% and net profit growth 9.4%. They also say the earnings growth will surprise estimates and that there could be some upgrades.