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Informist, Thursday, Aug 1, 2024

By Alina Geogy

MUMBAI – After the domestic stock market notched new lifetime highs, analysts have divided views on the direction of equities on Friday. While some analysts said strong corporate earnings would drive the indices to fresh highs, some said the market had "topped out" and was all set for a correction in the upcoming sessions. 

The market is driven by June quarter earnings growth, Geetanjali Kedia, senior research analyst at SPTulsian Investment Advisory Services, said. Kedia said most automobile companies, which released their results so far, reported healthy financials for Apr-Jun. Industrial companies also posted good earnings, while those of banks and fast-moving consumer goods firms were a mixed bag, she said. Kedia is bullish on clean energy, industrials, and infrastructure stocks. 

Today was the fifth consecutive session where the Nifty 50 ended at a new lifetime closing high. It also managed to surpass the key 25000 level for the first time. The Nifty 50 and the Sensex hit their intraday highs of 25078.30 points and 82129.49 points, respectively. They also ended at their record closing highs of 25010.90 points and 81867.55 points, respectively. Support for the 50-stock index is pegged at 24900 points while resistance is pegged at 25100 points, according to analysts. 

On the other hand, the market seems to have topped out at the current juncture and is likely to undergo some correction, Ganesh Angaj, technical head at NVS Brokerage, said. Real estate stocks are likely to see some more corrections as this sector had run-up a lot in the recent past, Angaj said. However, he is positive on oil and gas stocks and expects them to continue gaining.

Investors also await the June quarter earnings of Nifty 50 companies, such as Britannia Industries Ltd and Titan Co, due Friday. The fast-moving consumer goods major Britannia is expected to report strong earnings growth for Apr-Jun, aided by robust sales volume. Meanwhile, fashion accessory maker Titan Co's net profit for the quarter is expected to fall 3.5% on year, likely impacted by a rise in prices of gold and competition from regional players. 

Among other sectors, banks are expected to remain in focus, as investors digest the recent mixed earnings of companies and finer details regarding stagnant credit growth and margin pressures. Returns and profitability of banking stocks will not be impacted much this financial year, but there are worries that banks are not seeing meaningful margin improvement, Ajit Kabi, research analyst at LKP Securities, said. Even though earnings were largely in line, there are concerns due to increasing slippages, deteriorating asset quality, and slow deposit growth leading to pressure on margins, he said.

Deposit growth for banks will be slower for an indeterminate time period and retail deposits will also be low until there are rate cut announcements, Kabi said. Valuations of most bank stocks are stretched, but some stocks such as Kotak Mahindra Bank, HDFC Bank, and Axis Bank are at comfortable levels compared with their historical figures, he said. 

Today, investors pored over automobile sales data for July. Bajaj Auto and TVS Motor reported on-year growth in total sales for July, while Ashok Leyland and Maruti Suzuki reported an on year decline. For Mahindra and Mahindra, total automobile sales were flat on year in July, while tractor volumes rose.

Meanwhile, investors are also looking out for the Reserve Bank of India's monetary policy meeting, due next week, for the central bank's stance on interest rates. Analysts said it was unlikely that the RBI would hint at potential rate cuts anytime soon, similar to what the US Federal Reserve did late Wednesday. The RBI governor had reiterated on multiple occasions that the central bank will not necessarily follow what the US Fed does with respect to rate cuts. He also said interest rate cuts will not be considered unless inflation falls to the 4% target and remains at this level.

The US Federal Reserve, on Wednesday, kept its key interest rate unchanged for the eighth straight time and hinted at a rate cut at its next meeting in September. The US central bank indicating a potential rate cut at its next  monetary policy meeting is a "good sign", Kabi of LKP Securities, said.  End

Edited by Vidhi Verma

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