Global cues, tax code draft to chart course

INDIAN stocks may continue to look overseas for direction in the week ahead. But analysts see limited upsides from these levels, as investors are expected to book profits since uncertainty about Europe’s health is yet to recede. Investors will closely watch the contents of the revised direct tax code draft, which is likely to be published by the finance ministry this week for public opinion.
“The market (Nifty) has 5000-5050 acting as a strong support zone and will have to look for positive cues from global markets to build on recent gains,” said Dipan Mehta of Dipan Mehta Shares and Stock Brokers. Last week, the Nifty shed 0.3% to 5119.35.
With local economic data, including last week’s industrial production reading for April, which is at a 20-year high, remaining robust, investors have little doubts about the recovery in the Indian economy. But they fear India’s economic growth would be affected, if problems in Europe are not solved.
“A mood of depression pervades global equity markets. Most investors we speak to believe that the global economy faces a double dip and that structural issues, such as sovereign debt, will keep global growth sub-trend for a prolonged period,” said Garry Evans, global head of equity strategy at HSBC.
But the bank thinks such fears are stretched. “We are happy to stick to our view that this is a normal correction, not a new bear market, and that some countries’ equities, especially in emerging markets, now offer interesting opportunities,” said Mr Evans.
Barclays Capital, in a report, said, “We believe that markets have overreacted assuming that the recovery is losing strength. But we do underestimate the existing difficulties from the European sovereign issues to the risks of a Chinese bubble.”
Analysts expect shares of Reliance Industries (RIL) to surge further this week on news of its Infotel Broadband acquisition. The stock rose 3% to close at Rs 1,046.25.
“This could be a good diversification strategy, as RIL was looking for opportunities to deploy free cash, but it will also intensify competition as existing players will have to deal with a large player with deeper pockets,” said Gaurav Dua, headresearch, Sharekhan.