rediff.com: Analysts see limited decline in markets

Indian stocks are seen supported this week by hopes for solid earnings reports, but sentiment Monday could be undermined by selling of the index heavyweight Reliance firms after their founder's death at the weekend.

Dhirubhai Ambani, founder of the Reliance companies that make up 15 per cent of the benchmark Bombay share index, died on Saturday aged 69 following a stroke he suffered last month.

An emotional drop in Petrochemicals giant Reliance Industries and refiner Reliance Petroleum could weigh on the index, but any decline would be limited, analysts said.

Their shares had already fallen more than five per cent each following Ambani's hospitalisation two weeks ago even though his two sons have been running day-to-day operations for years.

"Investors had known all along it would be difficult for him to pull through...much of the bad news has been factored into the price," said U R Bhat, chief investment officer at JF Asset Management, which oversees $500 million in Indian assets.

The Sensex rose 2.64 per cent last week to a three-week closing high, boosted by industrial stocks after recent data signalled a strengthening economy.

Once the market absorbs news of Ambani's death, focus will switch to stocks unveiling April-June earnings reports.

"We will see a parade of result announcements this week and that should pretty much drive markets given the expectations of a strong earnings season," said Vetri Subramaniam, head of equity funds at Kotak Mahindra Mutual Funds, which manages about Rs 15 billion. Hero Honda Motors, the nation's No 1 motorcycle maker, will be the first off the block on Monday, followed by blue-chip Infosys Technologies on Wednesday.

Earnings sentiment was boosted on Friday when mid-cap firms Jammu & Kashmir Bank and Exide Industries released strong results, driving their shares higher.

Wall Street, where Nasdaq and the Dow Jones industrial average rose 4.94 and 3.58 per cent respectively will provide support, especially for software companies which send about 60 per cent of their exports to the United States.

But the sector is likely to look to technology bellwether Infosys, which releases April-June first-quarter results on Wednesday, for longer-term direction, traders said.

Signs foreign funds may be turning into net buyers of Indian markets provides another layer of support, analysts said.

"The growth story in India is the one on divestment and if the spiral remains positive I see foreign funds returning in a big way," Sagar Tanna, fund manager at Motilal Oswal Securities, said.

Offshore funds sold a net $35.1 million in Indian equities in June, the third straight month of net outflows, but bought most of it back in the first four days of July.

"They (foreign funds) were negative because of Indo-Pak and the Gujarat issues and all that has changed," said Tanna. "One more big ticket sell-off will convince foreign investors about the commitment of this government.



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