Amazingly, despite Infosys Technologies-the bellweather of the Indian corporate scorecard–declaring disappointing fourth quarter results and lower than expected earnings guidance for this year, the Indian stock markets moved up on Wednesday. The Sensex closed above 11,000 for the second time this week, up 317 points and the broader S&P CNX Nifty closed out at 3484 points with gains of 101 points, tracing a possible US recovery.

Pundits have a habit of describing too many events in the span of a week as significant, but there can be little reason to quibble over this one. The early bird score sheets as the week progresses will tell us if India has managed to wriggle out of the clutches of a downturn a la the green shoots that USA and UK are claiming to notice. If that happens this would be the fastest ever turnaround by the Indian economy from a downturn. Just consider the scale of the pressure that has come upon the economy?that would make a possible recovery absolutely phenomenal. The next thing is of course more iffy, but again, if the downturn is really arrested that would show why pursuing a sound economic logic of open trade and flexible exchange rates actually help an economy to weather a bust cycle far better than a closed economy.

Prime Minister Manmohan Singh told Indian industry on Monday that he was sure recovery of the Indian economy was on its way in this fiscal and definitely before the end of second quarter. Speaking to FE, Deepak Parekh also pointed out that several FMCG companies have discovered the January-March quarter as one of the best in their corporate history. Those are strong words and the results season will show if that optimism has been borne out.

If one looks at the Infosys results in detail, the striking aspects are the cross currency headwinds. The 29% rise in quarterly profit was less than market expectations but it was its guidance for downbeat dollar earnings that was read more carefully.

Forex losses will actually be the key caveat to read in all the result sheets. Corporate India did big time lobbying to convince the government to defer implementation of AS-11 that mandated companies to reveal their forex operations on a mark to market basis. Thus improvements in bottom lines should be read with the impact of the deferral on a case by case basis.

This means any attempt to glean information on whether the ship of corporate earnings and therefore the economy is reaching calm waters will have to make room for these under water hits. Since the rupee has depreciated by 4%, slightly more than quarter three, the quantum of losses is expected to remain constant sequentially for every company that trades with the rest of the world. Cross currency headwinds are therefore the flavour of the season.

How would the dip in inflation impact the scorecard? In a growing economy, a company?s actual growth is measured over and above the trend rate of price rise. Since inflation has moved to almost zero over the past one month, the rates of growth that companies would show in this quarter could turn out far lower than last quarter. They will therefore have to be compared after netting out the impact of inflation on the results in the previous quarter.

The early signs are somewhat propitious. The stock market has turned out its longest winning streak in eighteen months and private sector bank stocks like ICICI Bank and HDFC Bank have gained by 4.7% and 5.2% as on Monday.

The markets, of course are not just responding to domestic cues?the Sensex rose by 1.5% as the MSCI Asia Pacific Index climbed 0.3%. But last week they did rise even when Asian markets looked sombre. That in turn was spurred by foreign institutional investors who bought $393.5 million more Indian stocks than they sold till April 8. Net purchases by FIIs in March were $131.6 million as per Sebi data.

Are we reacting too soon? That is a difficult call but it was just two quarters ago in tumultuous September 2008, when Goldman Sachs reported losses and converted itself into a commercial bank from an investment bank. For it to now declare a $ 1.65 billion profit is a turnaround that was not expected so fast. The worry line is the toxic waste that has still not come off the balance sheets of insurance companies? balance sheets.

Within India, the spoiler in this environment could be the government itself and this is not a business as usual syndrome. In just six months, that is by September, the government will borrow Rs 2,40,000 crore from the financial markets. That will be great news for banks as they make a killing on income from mark to market government securities. But that could mean an even more narrow credit window for the corporate sector. As of now, the point to note is that on Wednesday investors bought in all sectors including even infrastructure, cement, metals and of course pharma.

subhomoy.bhattacharjee@expressindia.com

Infosys results

• Infosys Technologies net profit year on year increased 28.5% at Rs 5,988 crore in 2008-09 against Rs 4,659 crore in 2007-08

• The company’s Q4 FY09 net profit dipped 1.7% at Rs 1,613 crore, against Rs 1,641 crore on a quarter-on-quarter basis.

• Revenue declined 2.61% at Rs 5,635 crore against Rs 5,786 crore QoQ.

• The company expects FY10 revenues to decline by 3.1-6.7% in dollar terms, but an increase in revenues by 1.7-5.7% in rupee terms

• EPS for the full year FY10 is expected at Rs 96.65-101.18 a share versus Rs 104.43 in FY09