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Key stock indices are likely to trade with a positive bias next week as the National Stock Exchange's 50-share Nifty held and closed above the 6050-mark yesterday and as investor sentiment is positive following the government's move to allow tweaking of diesel prices. Better-than-expected Oct-Dec earnings from index heavyweight Reliance Industries is also seen aiding the upside on Monday. Post market hours yesterday, Reliance Industries reported a net profit of 55.02 bln rupees, beating estimates of 51.68 bln rupees by a wide margin. The company's gross refining margin topped estimates; standing at $9.6 a barrel compared with $9.5 a barrel in Jul-Sep. The stock, which has a weightage of 7.69% in the Nifty, can rise up to 960-970 rupees from yesterday's closing price of 900.20 rupees.
Any substance above 6070 (on the Nifty) levels can create a short squeeze, guiding the index above 6100 levels for the first time since January 2011. We expect the Nifty to hold onto its support of 6000, slipping below which it may find its fall cushioned at 5950-5980. Overseas markets will be initially eyed for cues, with the Bank of Japan's monetary policy meeting and meet of Eurozone finance ministers due next week.
But the focus is largely expected to remain on Oct-Dec earnings from companies. Over the weekend, UltraTech Cement will report its numbers, while next week results from Asian Paints, Cairn India, Housing Development Finance Corp, NTPC, Hindustan Unilever, Larsen & Toubro, Sesa Goa, and Maruti Suzuki India are due. Stocks of public sector oil companies may continue to gain on the first steps to diesel deregulation that the government has taken, following which oil marketing companies raised the base price of diesel by 45 paise per ltr yesterday. We believe upstream companies are best play on the pricing reforms given the potential in earnings growth from their core business.
Among upstream companies it prefers Oil and Natural Gas Corp, expecting its subsidy burden to ease by 75 bln rupees. Amongst OMCs (oil marketing companies) HPCL (Hindustan Petroleum Corp) is likely to outperform in wake of diesel price hikes given its marketing heavy portfolio relative to refining, however we believe BPCL (Bharat Petroleum Corp) is a safer bet given the cushion it has from its upstream valuations. However, some traders recommend booking profits in the stocks as they have already posted double-digit gains in the past few sessions. Meanwhile, bank stocks are expected to trade in a narrow range on caution ahead of the Reserve Bank of India's third quarter monetary policy review on Jan 29. Though the market widely expects the central bank to cut the repo rate by 25 basis points on Jan 29, RBI Governor D. Subbarao recently tempered expectations by saying that though inflation has eased, it remains high.
