Corporate earnings, inflation data to drive stock markets this week

This week will be weak again in the beginning and only positive domestic and global cues could turn markets towards positive territory. The real cause for concern is the low open interest and subsequent huge volatility that any news trigger does to the market. The market is expected to react to the disappointing index of industrial production (IIP) and retail inflation figures released on Friday.

Besides, the next set of earnings results for the first quarter and wholesale price-based inflation data for June, which will be released today, will set the tone. Investors will look forward to the first quarter numbers of blue-chip companies like HDFC Bank, Tata Consultancy Services, Reliance Industries Ltd, Bajaj Auto and HDFC this week. Investors will be also governed by foreign institutional investors (FIIs), rupee movement, crude oil prices and global cues.

Last week saw a huge sell-off on the US Federal Reserve announcement of tapering of quantitative easing causing markets to surge. Though the Fed did not set a time frame, markets surged on mere speculation. There is possibility that in the coming weeks, markets will again take a different view on the timing and manner of the withdrawal of bond-buying by the US government and react accordingly. Infosys results were better than expected, but what fired the market was the fact that the IT giant has maintained its current year's growth guidance at 6-10 per cent. This saw the Infosys stock open with a massive upside gap of about 10 per cent. This rise was more or less maintained at day's end and resulted in more than half the day's gains on the Sensex. This also helped tech sector shares to rally and saw sharp gains made by TCS and Wipro shares.

FIIs have slowed down their sales momentum and were net sellers of Rs 670 crore in equities and just under Rs 4,000 crore in the debt market. Domestic institutions were net sellers of Rs 640 crore in the equities market.

The exports data for June saw the trade deficit falling because less gold was imported. But the cause for concern is that exports continued to slow down. What will affect the market is that the data came after the markets closed on a positive note on Friday.

IIP for May was negative at 1.6 per cent, the lowest factory output in 11 months.

To add to the woes, the April numbers were revised downwards from 2.33 per cent to 1.88 per cent. Retail inflation for June rose to 9.87 per cent mainly due to rise in vegetable and fruit prices.

What is now worrisome is that Reserve Bank of India governor D Subbarao may not think of cutting interest rates at all at the July 30 meeting.

Worried about the economic scenario, Prime Minister Manmohan Singh decided to call a meeting of captains of industry on July 29.

The markets made a small upward gap in the Sensex between 19,725 and 19,785 on Friday which looks under threat today itself. It would be a tough week for investors.

(Arun Kejriwal is an investment analyst)