There is not much expectation about the current quarterly earnings season and the disappointment seems to be already factored into the stock prices. Markets will watch out for Management commentary regarding the business outlook and earnings guidance. During the week beginning Monday, market heavyweights like HDFC Bank, Infosys, ACC are expected to declare their results, which will guide sector specific moves for next week.
Currently, a major part of the world population is under lockdown and it is expected that markets may not take any material direction till the lockdown ends. The moment lockdown ends, market would start reacting to the ground reality.
Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote. Said, “As the earning progresses during the week, it would be advisable to investors not to make any estimates or guesstimates basis this quarterly performance. Thus, assessing Q4FY20 numbers would be an exercise in hindsight as what is lying ahead of us is unknown and uncertain. Hence, this earning season would generate volatility but no meaningful price direction. Investors are advised to continue with their SIPs which would aid in bringing their average costs lower”.
Markets during the week remained choppy and traded higher on hopes that the government and RBI would aid in reviving the economy and build market confidence by injecting liquidity and fiscal incentives. RBI has partly done this which lead markets higher by the close of the week.
Vinod Nair, Head of Research at Geojit Financial Services said, “Capping off a volatile week, India’s Nifty Index finally closed out the week at 9266.75 points with a gain of 1.7 per cent. With the hope that the infections are peaking out in Europe and with the expectation that lockdown measures may be eased in the US, global markets were also positive for the week”.
In addition to such stimulus, the combined scientific effort to invent a possible drug for COVID-19, which may come sooner than expected, ignited a positive market sentiment. It is expected that the domestic market will continue to reflect the global mood given that combating COIVD-19 is a global effort and therefore the mood will continue to change depending on the situation. However, as a word of caution it would be pertinent to note that although markets are rising, volumes along with open interest are at yearly lows and investors still appear to be wary.
Nair said, the markets shook off disappointing economic news in favor of the expectations that the process of economic recovery may soon begin, with the opening up of businesses and economies. RBI measures to boost liquidity and reclassify NPA norms for commercial banks helped rate sensitive stocks perform, with more measures expected to contain the economic fallout.
FIIs/ FPIs also seem to be under worry as Indian Rupee (INR) is continuously losing its value and they are therefore selectively selling, even though with lesser intensity, whereas domestic investors are still cautious and unwilling to put money given that markets have already increased by 24 per cent from their lows. Pharma, speciality chemicals along with FMCG sectors have outperformed given that they may be the least impacted due to lockdown. At the same time, autos and select NBFCs tried to recover but they still face resistance at higher levels due to earnings worry.
RBI’s second tranche of infusion was rather conservative as the Governor followed a piecemeal approach to infuse liquidity. But for the time being, major concerns were addressed as real estate and NBFC sectors have received relief, NBFCs and other financial institutions have liquidity coming in from the RBI’s TLTRO 2.0 and there is relief on the NPA recognition and stressed asset reclassification for banks. A 25bps reduction in the fixed reverse repo rate will encourage banks to lend more and improve liquidity in the system. The current measures and further openness to provide further relief if the situation worsens is a big relief in these lockdown conditions.