-
We feel the government's improved performance
so far in this fiscal has been partially overlooked by the market
and the same could act as a catalyst for a rally in the stock
market during the run-up to the Union Budget 2008.
-
In our last Market Outlook report dated October
06, 2006, we had stated that we expected an upgrade in the Sensex'
earnings estimates going forward and we have witnessed an 11.4%
earnings upgrade for FY2007E, in line with our expectations of a
10-15% earnings revision.
-
The domestic scenario remains upbeat: On a
year-on-year (y-o-y) basis, the gross domestic product (GDP) has
grown by 9.1% and the Index of Industrial Production (IIP) has
risen by 10.9% in H1FY2007 with a strong growth of 12.1% in the
manufacturing sector.
-
In Q3FY2007, no major surprises are expected on
the earnings front. However since the Diwali festival fell in
October in FY2007 and in November in FY2006, some purchases could
have already got reflected in the higher Q2FY2007 numbers,
especially for the automobile sector. Hence the y-o-y growth in
the profits could be slightly muted for Q3FY2007 compared with
that in Q2FY2007.
-
US housing data continues to be weak; however
the third quarter GDP numbers were better than expected. The huge
inventory build-up is the main concern, which is feared to limit
growth in the last quarter. The market is expecting the US Federal
Reserve (Fed) to start cutting rates from March 2007
onwards.
-
Normally, December is the year-ending month for
most foreign investors, who prefer to allocate fresh funds from
January onwards. However there has been a change in this pattern
since FY2004 and we expect the foreign institutional investors
(FIIs) to actively participate in the stock market during the
run-up to the next year's budget. A study of the trend of FII
activity in the Indian stock market over the past two fiscals
reveals that 51% of the net investments for FY2005 and 50% of that
for FY2006 were made between November and February.
-
We continue to prefer domestic demand-driven
stories like automobiles, banking, capital goods and cement.