Sensex, Nifty Fall: Earnings To Trigger Sharp Stock Reaction This Season, Say Analysts
Analysts identify key risks to domestic markets in the near term.
Reaction to tepid earnings, inflation concerns, surge in commodities prices and supply-demand gaps due to escalation of Russia-Ukraine conflict contributed to the fall in markets, according to analysts.
India's stock benchmarks fell the most in six weeks on Monday upon resumption, after a truncated week in which markets were shut on Thursday and Friday.
Information technology and banking stocks dragged, led by the fall in Infosys Ltd. and HDFC Bank Ltd., after they reported their fourth quarter earnings.
Infosys fell the most in two years after analysts cut margin estimates citing supply-side challenges, while HDFC Bank shares declined after the lender's net interest margin contracted to 4%.
Analysts expect sharp reactions for companies that miss estimates this season.
Here's a summary of the views of analysts and the near-term outlook:
G Chokkalingam
Founder and CIO, Equinomics Research
Volatility in domestic market to continue with some downward bias over a couple of months, as the Ukraine conflict is getting complicated.
Do not expect a major fall in the market.
Continue to believe that small and mid cap segment will continue to outperform.
Retail investors continue to pour into markets and they are expected to focus on small and mid cap segment.
Economic parameters, other than inflation, continue to improve.
Besides inflation, India's falling foreign exchange reserves and fuel sales are other major concerns for the Indian economy.
Oil could fall back to $80 per barrel, if the conflict ends.
Domestic equity market is unlikely to fall in a major way.
Rate hikes in the U.S. and the normalisation of monetary policy remains a net positive in the medium to long term.
In the short term, it (rate hike) gives some nervousness. However, history has proven that monetary reversal happens because economy got strengthened.
War aggravated inflationary trends have caused markets to fall a little beyond expectations.
Suggest investors to tilt towards quality small and mid cap stocks with around 30% exposure to the large cap segment.
Risk to the outlook would be the extension of Ukraine conflict persisting beyond May.
Vikram Kasat
Head-advisory and western region at Prabhudas Lilladher
Outlook for growth in markets is tumbling for short while due to high price of commodities, inflation, speculation of hike in interest rates and some supply-demand gaps due to geopolitics.
We could see instance of direct impact on stock of firms that miss estimates this results season.
Important to keep investment thesis handy to grab such market opportunities.
Mitul Shah
Head of research, Reliance Securities
The market is trading lower due to aggression in Russia-Ukraine conflict in the last few days, impacting global equities severely.
Sharp 4.5% decline in the IT sector impacted by Infosys Ltd. results which came lower than expectation, with rising attrition and weakening margins pulling down the overall market.
Naveen Kulkarni
Chief investment officer, Axis Securities
A number of factors which have unsettled investor’s confidence: Global headwinds of likely aggressive rate hikes, rising inflation, and resurgence in Covid-19 cases in parts of the world and ongoing Russia-Ukraine conflict.
Expects FY23 to witness continued volatility in equity markets, especially in the first half of the year with rising interest rates globally and high inflation, which is expected to persist.
Expects money to move from long-duration debt funds to equity funds in the second half of the year, which should bode well for equities.
Continues to remain positive on sectors like metals, hospitals, hospitality, oil refining, capital goods, etc. Some underperforming sectors might include discretionary consumption, IT, NBFCs, etc.
Shivangi Sarda
Quantitative analyst, derivatives and technical research, Motilal Oswal Financial Services
India VIX is up by nearly 10% which is giving some discomfort to the bulls and needs to sustain at lower levels for market stability.
As long as it trades below 17,350 zones, we can expect lower level towards 17,000 and 16,800 zones whereas resistance can be seen at 17,442 and 17,550 zones. Market breadth continues to be predominantly in favour of the declining counters which indicates weakness.
Apart from FMCG and auto stocks, all other sectors are trading in the negative territory out of which IT and banking stocks are witnessing maximum weakness.
Nifty and Bank Nifty are moving in the negative momentum with weakness. Traders are advised to apply sell on rise strategy as overall trend has turned weak. At current juncture, we are advising to be with stock-specific buying and one can look for buying opportunity in Hindustan Aeronautics Ltd., Bharat Electronics Ltd., Chambal Fertilisers Ltd., Mazagon Dock Shipbuilders Ltd., Balrampur Chini Ltd.
