India Markets Outlook for the week (24 - 28.10.2011)

The trend in domestic equities on Monday will depend on the outcome of the European Union summit on Sunday. The finance ministers of 27 European countries will meet on the day to discuss the debt crisis in Europe and come up with a solution. Goldman Sachs expects European leaders to announce steps such as 100-250 bln euro recapitalization of regional banks, cut of around 40-50% in Greece's debt through involvement of private banks, and speedy replacement of the European Financial Stability Facility with the European Stability Mechanism. Back home, investors are likely to avoid taking big bets Monday as they will wait for the Reserve Bank of India's review of macroeconomic developments post market hours. The RBI's observations are expected to provide hints on its policy moves on Tuesday.

Currently, the expectation is that the central bank will hike the repo rate at which it lends to banks under its Liquidity Adjustment Facility by 25 basis points as inflation remains "uncomfortably" high. The RBI's policy, along with the expiry of the October derivatives series and companies' quarterly earnings, will set the trend for the week. Next week, there are only three trading days Monday,  Tuesday, and Friday due to the Diwali festival. On Wednesday, there will be ceremonial, or 'muhurat', trading for a couple of hours.

Domestic stock indices could see a relief rally of up to 3-4% on Tuesday if the RBI takes a pause on its rate hikes or hints at such a move ahead. The National Stock Exchange's 50-stock Nifty ended at 5049.95 points, down 41.95 points or 0.8% from Thursday. The Bombay Stock Exchange's 30-stock Sensex ended at 16785.64 points, down 151.25 points or 0.9%. Nifty heavyweights such as Axis Bank, GAIL (India), ITC, Sterlite Industries, Dr Reddy's Laboratories, Kotak Mahindra Bank, NTPC, Sesa Goa, and Maruti Suzuki India are scheduled to announce their Jul-Sep earnings next week.

ITC, which will detail its earnings on Monday, is seen reporting a year-on-year rise of 19% in its Jul-Sep net profit to 14.8 bln rupees. GAIL will also report its quarterly earnings on Monday. The state-owned gas transportation company's Jul-Sep net profit is seen growing at a modest 16% to 10.75 bln rupees due to high subsidy burden amid rise in crude oil prices and weakness in the rupee.

The Nifty is likely to face resistance at 5200 points and get support at 4970. Stocks of Larsen & Toubro may remain under pressure next week and could even hit a new 52-week low. The stock declined nearly 4% to 1,335.30 rupees yesterday as the company cut its order book growth guidance for this financial year to 5% from 15%. Maruti Suzuki stocks may extend gains and rise 2-3% next week as the workers' strike at the company's Manesar plant has ended. Yesterday, the stock rose 1.6% to 1,094.55 rupees.