In absence of any significant local data, Indian indices will take cues from US Federal Reserve policy on Wednesday and also from fourth quarter earnings of capital goods bigwigs like Larsen and Toubro and Bharat Heavy Electricals, experts said.
Experts believe that US Federal Reserve meet could impact the near term trend in equities. With the US economy showing signs of recovery many believe that the Fed may decide to tighten monetary policy and cut down quantitative easing. Mark Priest of ETX Capital said that any comment on QE by Federal Reserve chairman Ben Bernank will have huge impact on market.
“The decisions by the Federal Reserve has kept the markets afloat even from bad news coming in from the employment sector and has been ignored simply because the QE is out there and people expect it to carry on. So, it is a signal that it might be slowing down and then markets will react to it,” he said in an interview to CNBC-TV18.
Shane Oliver of AMP Capital Investors also feels that Bernanke is unlikely to upset the financial markets. While he would want to project some confidence based on strong job data, he will not go to the extent of scaling down third round of quantitative easing, Oliver said.
If the Fed decides to tighten the grip in the monetary policy, commodities prices could come under further pressure, but if the status-quo is maintained then there would be pressure on equities.
Meanwhile, Indian benchmark indices continued to consolidate today, after rallying last week. The 30-share Sensex fell 112.37 points to close at 20111.61, and the 50-share Nifty ended at 6114.10, down 42.80 points.
Experts believe that today’s fall was a small correction and it does not indicate any reversal in trend. “When we talk of a reversal we actually talk of a topping out which I don't see as of now because clearly there is liquidity flowing in. So, unless the markets go below 6,000-6,040 levels till then I would surely be cautiously positive,” Ambareesh Baliga of Edelweiss Financial Services said.
Technical analyst Sudarshan Sukhani of s2analytics.com believes that market is just giving sense of moving up but is essentially wedged where it was 10 days ago. Just 10 days back Nifty had touched high of 6105 and today it was at 6150. He advised not take any new long positions or take short positions only.
Capital goods stocks in focus
Shares of capital goods companies will be under focus for next few sessions as bigwigs like L&T BHEL, Thermax and Crompton Greaves will come up with their fourth quarter earnings over next few days.
SP Tulsian of sptulsian.com believes that things will remain dull-to-negative in the capital goods sector. While in case of BHEL Q4 provisional numbers are already out, L&T is seen performing well on the back of its engineering construction division, which has always been doing well and also has been the main contributor to the top-line and bottom-line of the company.
Tulsian however feels that despite positive numbers L&T is may see some correction on profit booking. “With the kind of run up which we have seen in the share price, you have a very limited scope of going upward from maybe beyond Rs 1,600, that can be taken as a resistance,” he said.
Among other capital goods counters, Tulsian is cautious of Crompton Greaves and Thermax. “I do not think that both the stocks will really be pleasing the market. So largely there are still some hopes alive in case of ABB which is keeping some interest alive in all the capital goods stocks,” he said adding that investors should not keep positive view on the sector at least till expiry.
Following a slowdown industry and policy paralysis, capital goods sector has been one of the worst hit. Until the infrastructure projects gets rolling in the country, the sector will continue to face slower demand.
In an interview with CNBC-TV18, MS Unnikrishnan, CEO and managing director of Thermax said that his company had not seen major recovery in order book in the quarter gone-by and he is neither expecting a reversal in trend anytime soon.