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Informist, Thursday, Jul 18, 2024

By Alina Geogy

MUMBAI – Better-than-expected revenue growth guidance and bullish commentary from Infosys could lead to early gains in benchmark indices and shares of information technology companies on Friday. However, any substantial gains in the Nifty 50 and Sensex are unlikely to sustain as traders and some investors are looking to book profits and lighten positions in the midst of a slew of corporate earnings and also in the run-up to the Budget next week, said market participants.

Information technology giant Infosys, which released Apr-Jun earnings after market hours today, raised its revenue growth guidance to 3-4% in constant currency terms for the current financial year. The Street expected the company to retain the guidance of 1-3%. The company's banking, financial services, and insurance segment turned positive in Apr-Jun after being weak for six straight quarters. The company also said it is seeing an improvement in the US financial sector.

The company's consolidated revenue for Apr-Jun grew nearly 4% on-quarter to 393.15 bln rupees, beating analysts' estimate of 389.95 bln rupees. Infosys' consolidated net profit for the June quarter fell nearly 20% sequentially to 63.68 bln rupees, but was slightly higher than analysts' estimate of 63.44 bln rupees. The American depositary receipts of Infosys traded 9.5% higher on the New York Stock Exchange at 1910 IST, as per data by Investing.com.

"The outlook for the information technology sector remains positive, and recent good quarterly earnings are also making it look appealing," a research analyst at a domestic brokerage firm said. 

With the Nifty 50 and Sensex hitting fresh lifetime highs, concerns around frothy valuations have kept gains limited to around 1% this week. "All the key technical indicators are placed in the extreme overbought territory...Hence, we advise short-term traders to take some money off the table and avoid aggressive bets for a while," Sameet Chavan, head of derivatives and technical research at AngelOne, said.

Today, the Nifty 50 and Sensex closed 0.8% higher each at record highs of 24800.85 points and 81343.46 points, respectively. Both the indices recovered from slight losses earlier in the day and ended in the green for the fourth straight session. The resistance for the Nifty 50 is pegged at 24900-24950 points while support is seen at 24500 points.

On Friday, action is seen volatile, with June quarter earnings of five Nifty 50 majors scheduled for the day, analysts said. Shares of Reliance Industries, UltraTech Cement, Wipro, JSW Steel, and Bharat Petroleum Corp will be in focus as these companies are set to report their Apr-Jun earnings on Friday. Index heavyweight Reliance Industries is expected to report on-year growth in consolidated net profit and revenue, but a sequential decline in the same.

Wipro's consolidated revenue is expected to be flat on a sequential basis on account of weakness across most verticals and low discretionary spending by clients. However, net profit for the quarter is expected to rise slightly on quarter.

UltraTech Cement is expected to have subdued growth in its bottomline in Apr-Jun as the company faced weak demand and muted cement prices in the quarter. Corporate earnings will be the highlight in the broader market too, as investors will react to the June quarter earnings of companies, keeping big movements stock-specific, analysts said. 

However, the underlying bias for Indian equities remains bullish, as investors count on populist measures and favourable allocation to various sectors in the upcoming Union Budget.

The long-term potential of India's growth remains strong, as evident from the buying interest from foreign institutional investors over the last few years. In recent times too, foreign institutional investors have turned net buyers, after net selling equities for several months.

Inflows from domestic investors are also strong with retail euphoria building up in sectoral and thematic funds, Elara Capital said in a report today. So far this year, 42% of active mutual fund flows are into sectoral and thematic funds, it said, adding that 55% of total active flows were into these funds even in June. This trend continues to create big euphoria in select pockets of the market, especially in infrastructure, power, and manufacturing funds, the brokerage said.

Sectors such as defence, aerospace, and capital goods, which are linked to capital expenditure, were in the limelight before the General Election results, Aditya Jaiswal, assistant vice president at Elara Capital, said. But now, investor focus has moved to sectors related to consumption and agriculture such as fast-moving consumer goods and agrochemicals, he said. This signifies a shift in trends post-elections, and is mainly due to the onset of the monsoon, and hopes for populist measures that can lift consumption demand. However, there may not be as many populist measures announced by the government as the market expects, he said.

Analysts are positive on fast-moving consumer goods stocks and expect them to extend gains. The Nifty FMCG index has been gaining for nine straight sessions. Signs of improvement in the rural economy and hopes of safety in the sector in case of a correction in the overbought market are also key factors pulling investors towards the FMCG space.

Stocks related to defence and railway are not at reasonable valuations, Harshit Kapadia, research analyst at Elara Capital, said. Of late, these stocks have gained sharply on investor anticipation of order inflows and good budget allocations to these sectors, he said. Hereon, the budget is the only major trigger for this sector, and investors may book their profits significantly if the allocation numbers are not as per expectations, he said.  End

Edited by Ashish Shirke

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