Stock markets to focus on Infosys Q3 earnings, IIP data this week

The week would be choppy as we enter a new territory not seen in the last two years. Markets need to consolidate after crossing the 6,000 mark on the Nifty and 20,000 mark on the Sensex.

These levels were last seen in 2010 December-end and the beginning of January 2011. The critical levels for the Sensex would be 19,900 and 19.600 while on the Nifty 6,100 and 5,975.

The market is likely to be volatile with the beginning of third quarter earnings season.

IT giant Infosys will declare results on January 11. The Infosys stock was the biggest underperformer on the Sensex in the last calendar year, losing 16 per cent while the benchmark index gained 25.70 per cent.

In the previous quarter, the stock had a high of Rs 2,620 while the low was Rs 2,245. The stock closed on Friday at Rs 2,348. The performance of the stock would have a direct bearing on the IT stocks but not any significant impact on the rest of the market.

Besides, industrial production (IIP) data, due Friday, could also impact market sentiment.

Industry expects that the Reserve Bank of India (RBI) will cut key rates when it reviews the monetary policy on January 29.

The mood in the market is turning bullish . A large part of the market believes that it would rise and in all probability make a new high crossing the levels seen in the first fortnight of January 2008 before the initial public offering from Reliance Power knocked the winds out of the market.

Fundamentals of the economy do not warrant such levels currently but it appears that this could happen in February.

The year began on a promising note and markets rose on all the four trading sessions. The record going forward cannot be as good and there would be days of fall or correction.

There is an expectation that diesel prices will be raised and the government is serious in reducing subsidies on this front. This saw stocks of oil marketing companies rise between 4.8 per cent and seven per cent while the Oil and Natural Gas Corporation, which shares more than one-third of the subsidy, rose more 7 per cent.

Foreign institutional investors (FIIs) have been very bullish pumping Rs 1.30 lakh crore into markets in the last calendar year while domestic institutions pulled out Rs 21,000 crore. Last week, FIIs invested Rs 5,700 crore while domestic institutions sold Rs 1,250 crore.

There is increased activity in the midcap and small cap segment, and once retail investors find that shares in which they have holding have started participating in the rally, they would also be tempted to join the bandwagon.

Markets are being driven by liquidity flows as was the case last year. These flows need to reduce or stop for any meaningful correction.

A key event for this would be the next Union Budget, wherein tackling the rising fiscal deficit while addressing political demands of populism need to be balanced. I believe markets will ignore fundamentals and continue to rally in the short and medium term.

Ride the rally keeping stop losses and make profits as long as they come.

(The writer is an investment analyst)

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