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Informist, Thursday, Aug 29, 2024

By Alina Geogy

MUMBAI – The key indices are expected to hit yet another record high Friday. However, analysts cautioned that profit-booking in select stocks in the broader market could continue due to expensive valuations and fears of an impending sharp correction in the market.

While the market may move up Friday, investors are expected to book profits in the second half of the day, especially in the mid-cap and small-cap segments as the valuations are not supportive, Vinit Bolinjkar, head of research at Ventura Securities, said. There is massive overvaluation in certain pockets and these will have a sell-off, he said. Meanwhile, shares of private and public sector banks and some index large-caps will be "hiding places" amid likely profit-booking, he said.

The broader market indices fell today, even though the benchmark indices hit fresh record highs. The Nifty Smallcap 250 index, down 0.6%, fell the most among broader market indices. The market breadth also highlighted a skew towards losses. Nearly 63% of all stocks traded on the National Stock Exchange ended lower.

The Nifty 50 and the Sensex ended at 25151.95 points and 82134.61 points, respectively, up 0.4% each. The Nifty 50 and Sensex hit fresh record highs of 25192.90 points and 82285.83 points, respectively. The Nifty 50 is expected to face resistance at 25300 points, while it may find support at 24950 points.

Among sectors, information technology will remain in focus, especially after the sharp gains seen in recent weeks. Analysts now warn that there could be some amount of profit-booking in this space over the next few days, even though their outlook for the sector remains positive for the medium-term.

"The sector has been pretty overbought at current levels. We may witness some amount of profit booking," Vikas Inder Jain, head of research at Reliance Securities, said. "So, 5-7% correction in (the Nifty) IT index cannot be ruled out...Maybe in the next two to three weeks."

Friday, the sector could also track the current weak cues from the US market, where shares of artificial intelligence major Nvidia Corp fell 8% in extended trading hours after its July quarter earnings, analysts said. Nvidia reported strong earnings for the fifth quarter in a row. However, it did not beat estimates as impressively as in earlier quarters. Inflation data from the US, due Friday, is also awaited.

The next hot topic for information technology companies is artificial intelligence, and this will grow just like the digital theme had played out strongly earlier, Bolinjkar of Ventura Securities said. Digital and artificial intelligence are the two key vectors that contribute to the profits of IT service firms and these are expected to grow more, he said.

In the information technology space, small-cap stocks are expected to gain as much as 15-20% in the next 30 to 45 days, Jain of Reliance Securities said. The large-cap stocks could rally anywhere between 8-12% in this period, he said. The Nifty IT index has gained for four consecutive days. It has also risen three straight weeks over the previous week, gaining over 4% so far this month. The sector gained strongly on heightened expectations of the US Federal Reserve cutting key interest rates at its next monetary policy meeting in September. Analysts said they would revisit their projections for key indices, as there are still around 18 days for the Fed's monetary policy decision. 

The rate-sensitive banking sector will also remain in focus and is expected to consolidate over the next few sessions. The Nifty IT and Nifty Bank indices have a negative co-relation, Jain of Reliance Securities said. The Nifty Bank usually moves sideways when the Nifty IT rises, he said. On the other hand, there could be a strong up-move in the banking index when the Nifty IT witnesses corrective action, he said. The Nifty Bank is lagging the Nifty 50 and has not yet hit a fresh record high even though the benchmark index has. The Nifty Bank index ended largely unchanged today.

Analysts are positive on oil and gas stocks, particularly shares of oil refining companies, because of cheap valuations and levers of growth through increased throughputs, analysts said. Shares of upstream companies Oil and Natural Gas Corp and Oil India are expected to do exceptionally well in the coming months, they said. Some upside is also expected in shares of oil marketing companies as they have opportunities for growth through their new green energy verticals whose valuation is yet to be fully captured by the market, they said.

Shares of oil-to-telecom conglomerate Reliance Industries are expected to be range-bound in the coming days, analysts said. Today, market participants were watching out for key announcements, especially related to an initial public offering for Reliance Jio, the retail businesses, and updates related to the company's new energy business. However, the anticipation regarding announcements did not play out as much as expected, analysts said.

During market hours today, the company announced it would consider a bonus issue of shares at a board meeting on Sep 5. If approved, it would be the company's third such bonus issue of shares after 2009 and 2017. It also said it aims to double Reliance Jio's revenues and earnings before interest, taxes, depreciation and amortisation, in three to four years.

Nifty 50 constituent, Tata Motors, will delist its shares with differential voting rights and issue ordinary shares in return. The company had, last year in July, approved a scheme of arrangement for reducing the capital of the company by cancelling the entire 'A' ordinary shares having differential voting rights. The differential voting rights of Tata Motors got listed on the bourses in November 2008 as part of a rights issue.

Tata Motors will issue seven new ordinary shares for every 10 'A' ordinary shares as consideration for the reduction and cancellation of 'A' ordinary shares. "This instrument had lost its charm, somewhere in 2010, when the regulator had concerns on the use of the instrument, and thereafter, it's been restricted only to startups," P.B. Balaji, the chief financial officer of the company had said then. Shares of Tata Motors rose sharply in the last half an hour of trade and ended 4.4% higher. Shares of Tata Motors-DVR also rose sharply and ended 2.9% higher.  End

Edited by Ashish Shirke

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