Market looks beyond fourth quarter for leg up

 Market looks beyond fourth quarter for leg up

Analysts and market watchers are already looking beyond corporate results for the fourth quarter even though it has a full week to go.

Any hint of earnings for the next fiscal, through management guidance or otherwise, would help them decide if the benchmark indices have the strength to pull higher. “The market has started looking at FY11 earnings, which are expected to be better than the current year,” says Dhiraj Sachdev, vice-president and fund manager at HSBC Global Asset Management. “The earnings for the current quarter have already been partially discounted in the current index levels. The markets are likely to look beyond these figures to FY11 for cues,” says Mallinath Madineni, CEO, Fa Capital Advisors. Expectations on earnings are running high, with market participants seeing growth in excess of 20% next fiscal. “We may see FY11 earnings at around Rs 1,045 (per share for the Sensex), which is around 23% growth over this year,” says Naresh Kothari, president, Edelweiss Capital. Sandip Sabharwal, CEO - portfolio management services, Prabhudas Lilladher is looking at a 25-30% growth. However, worries remain on the effect interest rate hikes would have on the bottomlines of companies. “The latest rate hike by the Reserve Bank of India (RBI) was unexpected. One might see a further 50 basis points increase soon. This increases the borrowing cost for corporates and could affect profitability,” says Madineni. RBI had on March 19 raised its repo rate, the interest charged by it when lending money to banks, by 0.25% to 5%, on March 19. It also raised the reverse repo rate, the interest banks get on money parked with the central bank, by 0.25% to 3.50%. A major factor for the interest rate hike is inflation. Wholesale price index based inflation had weighed in at 9.89% for February. But market watchers feel the trend of rising inflation is nearly over. “Inflation has almost peaked out this month and we may see it returning to 4-5% levels going ahead,” says Sabharwal. According to him, the RBI move was part of a normalisation process as interest rates have been low for some time. Foreign Institutional investors have been net buyers by more than Rs 15,500 crore in March, which has seen the Sensex gain 1129.30 points to 17558.85 as of Thursday. “Fund flows have been strong. We may see markets moving up 8-10% in next 3-4 months,” says Sabharwal.