Watch for this week: Presidential election, IT results

1. Presidential Election

Legislators across the country will cast their votes on Monday for the election of the 15th President of India. National Democratic Alliance (NDA) candidate Draupadi Murmu is all set to become the second Odisha-born President after VV Giri (1969-1974). Murmu, who hails from the Santhal tribe, will be the first tribal person to hold the post if elected. The Bharatiya Janata Party hopes to increase its tribal support base with this move. It had announced Murmu’s name last month after opposition parties declared Yashwant Sinha as their joint candidate. The NDA itself does not have a majority in the electorate, but Murmu may get success with the support of some regional parties like Shiv Sena. Parties often use their choice of presidential candidate to make socio-political statements. This time, some anti-NDA parties like the Jharkhand Mukti Morcha have been left confused about whether to go ahead with Sinha at the cost of troubling their tribal vote base.

2. Increase in GST Rate

Effective Monday, the government will remove tax exemptions on several items and also increase the tax slabs of several others to rationalize the Goods and Services Tax (GST) rate structure and boost revenue. The decision was taken at a two-day meeting of the GST Council in Chandigarh last month. Discounts on many non-branded foods were removed because the subjective nature of the word “branded” was causing conflict. The items will now be referred to as “pre-packaged and labeled”. The rate hike was also done to fix the inverted duty structure. The changes are also likely to help states, which had been requesting the central government to extend the compensation system beyond the June 30 deadline. However, higher rates may force the common citizen, who is already battling high inflation, to further tighten the purse strings.

3. HUL Earnings

HUL, India’s largest company in the fast moving consumer goods (FMCG) segment will release its earnings report for the quarter ended June on Tuesday. The company’s annual profit growth had come down to 5.2 per cent in the March quarter. The slowdown was a result of sharp inflation of raw materials due to lack of demand during the third COVID-19 wave and higher palm oil and crude derivatives prices. Most FMCG companies, including HUL, have tried to pass the burden on to consumers, which may help in revenue growth in the June quarter. Analysts expect HUL to post a modest 3-4 per cent growth from the base effect. Analysts said the increase in sales would be on the back of price hike, while operating margins are likely to remain under pressure.

4. IT Earnings

Two IT giants – Wipro and Infosys – will release their earnings reports for the June quarter this week on Wednesday and Sunday, respectively. Analysts expect Infosys to maintain its revenue growth guidance of 13-15% year-on-year. For both companies, strong attrition headwinds are reducing profit margins by raising salary costs. The radical measures they have had to take to retain employees, from promotions to frequent wage increases, will continue to put pressure on profits. According to KR Choksi’s earnings preview, sequential dollar revenue growth for Wipro and Infosys is pegged at 1.7% and 2.8%, respectively. The brokerage expects Wipro’s bottomline to grow by 3.3% and Infosys’ 1% sequentially. Investors will keep an eye on what companies say about future job loss rates and wage costs, as well as supply-side challenges. Another key watch will be the impact of economic slowdown, weak rupee and falling demand in the US and Europe.

5. ECB Policy

The European Central Bank (ECB) is set to raise interest rates on Thursday for the first time in 11 years. Economists believe the move will be too late: pandemic-era inflation had already outstripped its welcome, before it was pushed further upward by disruptions caused by the Ukraine war.

In June, headline inflation in the euro area reached a record high of 8.6%, more than four times the ECB’s target of 2%. In Spain, inflation crossed the 10% mark for the first time since 1985. Italy and Germany are also staring at multi-decade records. However, fears of a global slowdown mean that market participants are now expecting a lower rate hike this year than before. Nomura is also considering a rate cut for the next year before the rate hike. When it raises rates, the ECB will also need to ensure limited damages to vulnerable euro economies.

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