WEEK AHEAD

Some key Q3 results, IIP data in focus

Concerns about high inflation, rising interest rates and fears of slowing corporate earnings may continue to weigh on the bourses in the near term. A recent surge in oil prices caused by turmoil in Egypt could put upward pressure on inflation in India that imports about 80% of its oil requirement. Meanwhile, global food prices tracked by a UN agency hit their highest level on record in January 2011.

Foreign funds have dumped shares in consumption driven emerging economies including India this year as a spike in inflation could affect consumption and high borrowing cost could affect profitability among corporates.

The Q3 December 1010 results announced so far showed that the combined net profit of a total of 1,727 companies rose 22.2% to Rs 73371 crore on 20.4% rise in sales to Rs 612798 crore in Q3 December 2010 over Q3 December 2009.

Among prominent corporate results, Power Grid Corporation of India is due to report third quarter results on Tuesday, 8 February 2011. Mahindra & Mahindra announces Q3 result on Wednesday, 9 February 2011, to be followed by Hindalco Industries on Thursday, 10 February 2011 and Tata Motors on Friday, 11 February 2011.

The government will announce industrial output data for the month of December 2010 on Friday, 11 February 2011. Industrial production growth slumped to 2.7% in November 2010 as against a revised 11.30% growth in October 2010, as growth in the manufacturing output slowed sharply. The government is reportedly accelerating the rollout of a new Index of Industrial Production, or IIP, after several agencies voiced concern over the high volatility of the current index. The IIP measures factory output growth.

The next major trigger for the stock market is Union Budget 2011-2012. Investors will watch if the Finance Minister announces measures to rein in inflation and inflationary expectations. The Finance Minister may announce a new road map for the Goods & Services Tax (GST). The original deadline of 1 April 2010 for roll-out of GST has already been missed due to the lack of consensus between the Centre and states on the issue. GST is India's most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states.

The government may also announce some populist measures in the Budget given that assembly elections are due in Kerala, Tamil Nadu, West Bengal and Assam. In all these states, the Congress is potentially looking to regain power or to retain it.