Earning season kicks off on a Positive note

The earning season has kicked off on a positive note. IT major 'Infosys' has provided the long awaited booster doze to a rudderless market. For the next one month or so the focus will be on the FY '08 numbers, and global signals will take a back seat. The earnings of majority of the companies are expected to be robust, dispelling fears of an immediate slowdown. Other factors of significance for the markets will be:

• Inflation Data: Friday's inflation numbers will provide an indication of the steps taken by the Govt. to curb inflation. The regulators as well as the Govt. must learn to live with a slightly higher rate of inflation between 6-7%, as this rise is due to global factors. As far as the WPI figures are concerned it is shocking to learn that the figures are not being updated regularly, and provisional data is being used to dish out inlation data which is far off from the ground situation. For example, index of iron & steel having a weightage of 3.7% in thr WPI, was first revised in 2008 only on 8th march 08, leading to a sudden spurt in figures. The boom in commodity prices continues unabated, and surprised everyone in the midst of news of a global slowdown. The commodity cycle may be nearing its peak. In India food prices are likely to soften as the Govt is hopeful of meeting its procurement targets for the Rabi season.
• Short selling: From 21st April '08 the six year ban on short selling is being lifted. How is it likely to impact the markets? In the long run it will lead to efficient price discovery and will improve liquidity in the markets. To begin with short selling is being introduced in stocks that are already being traded in the Futures market. It will help in curbing extreme volatilty. Mutual Funds are likely to be the biggest beneficiaries of the new order. mutual funds may be able to earn more than 5% higher returns by churning their idle portfolio through stock lending. This augers well for Mutual Fund investors. It is also likely to bring back arbitrageurs to the market, leading to higher volumes. Some people fear a 'Bear Raid' by taking short positions and spreading rumours to benefit from the measure. However, this view is unsustainable, on the cotrary short selling may avoid excessive price rigging, which augers well for the markets.
• RBI Credit Policy: 29th April will see the unveiling of the RBI's quarterly credit policy. A 50 basis point hike in CRR to contain liquidity is already factored in by the markets. There is a wide expectation that the RBI will not tinker with the interest rates. The CRR hike may lead to raisng of interest rates by the banks, marginally.

Overall market sentiment is likely to be positive for the next one month.