Q2 Earnings, Liquidity Flow To Weigh On Mkt Movement

Mumbai, July 11: Indian markets continued to gain during the last trading week ended on Friday last. After a gap up opening in the early part of the week, the index traded in a range for the rest of the week. Markets carried the momentum of the previous week to end in the positive for fourth straight week in a row. The S&P Sensex gained 573 points (1.59 per cent) while the Nifty-50 added 161 points (1.52 per cent) during the week. However, on Friday, Nifty ended 45 points lower (-0.4 per cent) to close at 10,768, while Sensex was down 143 points (-0.4 per cent) to close at 36,594.

The gains for four weeks in a row, happened for the first time in last six months. It was in last December 2019, when we saw such back to back positive weekly closing. 

During last one month (June 12-July 10) period, the Sensex and Nifty have gained 2,813.34 points (8.33 per cent) and 795.23 points 7.97 per cent) respectively. The trading week ended on July 10 saw thin movements in the price and was the least volatile among the last four weeks. During the week the average intra-day movement of Sensex was 439.17 points (1.20 per cent) and for the Nifty it was 123.79 points (1.14 per cent). 

Now, the question is, where do we go from here? The immediate trigger for the next week is annual general meeting (AGM) of oil to telecom major Reliance Industries (RIL), scheduled on Wednesday, July 15. 

RIL has already mobilised more than Rs 1.50 lakh crore through stake sale in Jio platforms and rights issue. It is now on its way to become a debt free company. The company has almost kept its promise made in its 2019 AGM that it will become zero debt company by FY21. In the upcoming AGM, Chairman Mukesh Ambani is expected to make certain announcements with respect to company’s oil business as its digital business has almost settled and established with firm footing. Ambani is expected to make available further details with respect to RIL’s stake sale deal with Saudi Armco. Any revelations in this regard will weigh on the market during the week.

Another trigger for the market during the current Q2 (July-September) quarter would be the announcement of Q1 earning numbers. TCS has already reported its Q1 results. Its Q1FY21 net profit was at Rs 7,008 crore against Rs 8,049 crore it reported in the previous quarter. The IT giant’s constant currency revenue growth has also slipped to -6.9 per cent. However, taking a forward-looking view, the IT major has given a glimmer of hope that margins in coming quarters would be back to pre-COVID-19 levels by Q4FY21. Its software and IT service verticals are also expected to accelerate growth post COVID-19. It would be interesting to judge future growth of other manufacturing and service companies from their Q1FY21 results and management commentary.

Q1FY21 results are bit slow but will be important to assess the impact of post lockdown scenarios and the extent of demand uptake in the economy. Nonetheless, results are expected to be exceptionally weak but commentary is expected to be strong enough which would keep the prices where they are in a narrow range. In general, the bigger trend triggers will emerge on the back of how developed countries and foreign funds behave and respond to the post COVID-19 dynamics. Domestic factors may not have any major impact going ahead for the next few weeks. US markets are likely to remain range-bound but any severe crack can bleed domestic bourses as well.

Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services said, “This earnings season would be of key significance as it faced the maximum brunt of lockdown. Thus management commentary would be keenly watched out for and could keep the markets volatile in the near term.”

Investors' risk appetite strengthened after India and China have begun disengagement from the face-off sites in the areas of eastern Ladakh and progress of monsoon across the country cheered investors.

Deepak Jasani, Head Retail Research, HDFC Securities, said, “Technically, while the Nifty continues to move higher, the index is showing signs of tiredness as trading ranges have narrowed. The Nifty could attempt to target the 10885 levels in the coming week, where the 200 day SMA currently resides. On the downside crucial supports to watch for resumption of weakness are at 10,676.”

Majority of stocks in BSE500 and Nifty50 are hovering close to 200-day moving average levels which bring the markets at an equilibrium and going forward even a slightest push of liquidity would take the bourses higher, but this seems unlikely to happen given the large chuck of liquidity to be squeezed-out from secondary markets in the form of FPOs, IPOs, and QIPs before the second quarter (Q2FY 21) comes to an end in September. 

When too big to fail financial institutions like ICICI Bank and Axis Bank are expected to raise amounts of Rs 15,000 crore each, non-bank lender HDFC is expected to raise around Rs 14,000 crore to meet any potential inorganic growth opportunities, SBI which took an enabling resolution of Rs 20,000 crore to raise capital and many more come one by one to raise money, this optically raises a question mark on the financial sector of India. Why is so much money required so suddenly? Investors are hoping that by September quarter earnings, clarity will emerge but it is also expected that majority of money will be raised prior to the September quarter. 

Jimeet Modi, Founder & CEO, SAMCO Securities said, “How India Inc’s September earnings would turn out only time will tell but given the fund-raising exercise it seems all is not well. It is advised to remain cautious while picking NBFCs and PSU banks for now. As usual, investors are advised to stay on the sidelines and not indulge into FOMO buying but wait patiently. However, they should continue with their SIPs and regular investments in the market”. 

Vinod Nair, Head of Research at Geojit Financial Services said, “However, the near term outlook for the market is volatile as the earnings announcements have begun after a washout quarter for most industries. This uncertainty combined with profit booking happening after the recent rally, means that the volatility is expected to continue in the markets and investors would do well to be cautious and stock specific in this market."