Expect A Gap-Down Opening

Indian equity indices witnessed a bounce back yesterday on the back of factors like favorable US Fed minutes that suggested that the US Government is likely to keep the interest rates unchanged for a considerable time. Apart from that the increased GDP growth forecast for India in FY15 by IMF also added to the positivity. No wonder the benchmark indices witnessed a smart up-move as Sensex ended up 390 points at 26637 and the Nifty closed 118 points higher at 7961. Even the Mid cap and small cap indices managed to put up a smart show with significant outperformance over the benchmark indices. While Mid cap Index was up 1.83% the Small Cap Index was up 1.59%.

As we move ahead today India Inc kick starts the September quarter results with IT major Infosys announcing its quarter results. Investors would be focusing on Infosys results particularly in the sense of judging the performance of Vishal Sikka who is the first non founder CEO of the company. While the financial performance would be anyway analysed, all Eyes would be on what strategy Sikka provides for the company going ahead. As regards the expectations, the sequential quarter growth is estimated at around 3.4% to 3 .8% on bottomline front. We feel any better performance than the street estimates would help the stock move northwards.

Apart from the Infosys results another major announcement would be IIP data for the Month of August 2014. A marginal growth of 2.4% to 2.5% is the street estimate. In the previous year same month the figure stood at 0.5%. The Data would be announced after the market hours and hence any reaction from market participants would be seen on Monday.

On the global front the scenario changed very quickly yesterday. The US markets that managed to post a good up-move day before yesterday, erased most of the gains yesterday. The Standard & Poor’s 500 Index plunged the most since April 2014, erasing its biggest rally this year, on concern that slowing growth in Europe will hurt the American economy as the Federal Reserve ends its bond purchases. The S&P 500 declined 2.1 % to 1928.26. The Russell 2000 Index which had witnessed a good up move in earlier trading sessions, sank 2.7 %. The Dow Jones Industrial Average also witnessed a decline with the index sinking 334.78 points, or 2 %, to 16659.44. Experts suggest that, the fear is that global interest rates are so low that there is risk of deflation, and the economic recovery, which has shown some steady progress, is now deteriorating.

While this was the scenario in US, the European indices also declined for a third consecutive session. European indices extended losses mainly spurred by the fact that IMF lowered its growth forecasts. There are challenges ahead for the European economy. On the challenge Draghi said in speech in Washington that boosting growth in the euro area will have to come through improvements in productivity.

Taking the cues from US markets even the Asian equity indices are trading in red. While Nikkei is trading with a decline of almost 1%, Hang Seng is down by 1.32% as the Government deferred the talks with protestors. Shanghai Composite is also trading in red with cuts of 0.5%. Along with Asian indices, SGX Nifty is also trading in red showing a decline of 0.76%.

With the negative global cues we expect a gap down opening for the Indian benchmark indices. However the further way today would depend on how Infosys results pan out. If the results are above the street estimates, the indices may stabilize. However if the results are below street estimates, there would be broad based selling happening today.