The bias for Indian equities is likely to remain positive next week though bouts of profit booking could kick in as key indices have gained 8.5% in September. Further, caution before the release of Jul-Sep corporate earnings starting the second week of October will keep indices in a range in the truncated week. The Indian stock market will be closed on Tuesday for Gandhi Jayanti. Intraday, the Nifty touched a near 15-month high of 5735.15 amid firm cues from overseas markets after Spain outlined a budget that focussed more on spending cuts and less on tax hikes. On Monday, overseas markets will continue to lend initial cues to investors. Yesterday, US index futures pointed to a higher open on the Wall Street ahead of the release of a slew of data on manufacturing, consumer sentiment, personal income, and consumption in the country.
Back home, the Nifty's close above its crucial resistance of 5700 and a rollover of mostly long positions to the index's October futures suggest a positive bias in coming sessions. The September derivatives series expired on last Thursday. Nifty spot trading in the range of 5550-5800 next week. However, though the bias is positive, relatively lower rollovers to Nifty October indicated investors are reluctant to hold positions for long periods. Rollovers in Nifty futures were at 63% versus a three-month average of 68%, market-wide rollovers stood at 79% compared with an average of 82%. Rollovers in Bank Nifty futures stood at 53%, sharply below their average of 73%. Given this (lower rollovers), it is likely that we see some pressure among the banks in the short term as the market consolidates further but overall the set up looks likely to find further buying. The weekly price action is showing a bullish flag set up between 5640 and 5700 and a concerted break above 5700 could signal the next leg higher. The outlook continues to be positive moving into the October series. Among sectors, stocks of pharmaceutical companies, which gained yesterday as the government's announcement on drug pricing came as a relief to the market, may extend gains next week.
Late on Thursday, a group of ministers suggested fixing the ceiling price of a drug according to the weighted average price of all drug brands with over 1% market share in a particular segment. The move will bring pricing of 348 essential drugs under the government's purview and bring down average prices by 10%. The move is likely to impact Sun Pharmaceutical Industries, Lupin, Glenmark Pharmaceuticals, and Dr. Reddy's Laboratories' 2013-14 (Apr-Mar) earnings 1-2%. The estimated impact will likely be more pronounced for companies like Ranbaxy (Laboratories), Cadila (Healthcare) and Cipla at 2-5%, we expect, and most severe for GlaxoSmithKline Pharmaceuticals at 11-12% at the EBITDA (earnings before interest, taxes, depreciation, and amortisation) level. Stocks of Ashok Leyland could fall on Monday as ratings agency CRISIL has cut the company's rating outlook to negative, saying it expects volumes to de-grow due to weak demand.
