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Informist, Wednesday, Sep 25, 2024

By Anjana Therese Antony and Alina Geogy

MUMBAI – The "overbought" Indian market will continue to see muted gains and periodic corrections till the September quarter earnings season starts, as there aren't enough domestic or global triggers, analysts said. With the US rate cut-led optimism slowly fading, investors may not place aggressive bets until they get solid reasons to make investment decisions, which may lead to a marginal rise or fall of the equity market, they said. While a robust earnings outlook and strong foreign inflows keep the overall bias positive towards the Indian market, expensive valuation may limit gains in the near-to-short term. 

"A combination of lower crude prices, stable macro fundamentals, and potential monetary easing should anchor India's valuations, diminishing the likelihood of a significant market correction in the near term," Elara Securities said in its strategy report. "These favourable conditions with historical performance support a constructive outlook for the Indian market in the next three months, in our view," it added.

Analysts expect companies to report softer earnings growth on a year-on-year basis, but improvement on a sequential basis. "Any deceleration in earnings on QoQ (quarter-on-quarter) basis could drive markets down", Saral Seth, vice-president of institutional equities at IndSec Securities, said.

Today, benchmark indices hit fresh record highs in the second half of the session after remaining lower in the first half. The Nifty 50 and BSE Sensex ended 0.3% higher each at their record closing highs of 26004.15 points and 85169.87 points, respectively. The 50-stock index hit its all-time intraday high of 26032.80 points and the Sensex reached a lifetime high of 85247.42 points.

The support for the index is pegged at 25980-25900 points and resistance is seen at 26100-26200 points ahead of the monthly expiry of fuutres and options contracts on Thursday, according to technical and derivatives analysts at different broking firms. 

The fall in fear gauge India VIX also indicates that the near-term nervousness in the market is waning. The volatility index closed nearly 5% lower at 12.7425. 

Meanwhile, the Organisation for Economic Cooperation and Development today raised its forecast for India's GDP growth in the current financial year ending March by 10 basis points to 6.7% as it expects "solid domestic demand growth" to continue. Robust economic growth and benign inflation are among key factors which have been attracting foreign inflows into the domestic equity market. 

When it comes to information technology stocks, it is likely that caution may persist till the outcome of US IT giant Accenture earnings due on Thursday. The US company is likely to set the tone for Indian IT companies and their stocks in the coming sessions. The trend in the US IT company's financial performance usually gives clues about what can be expected by its Indian peers. While major improvement in the demand environment was not expected for the current financial year, management of major Indian IT companies had said that they see green shoots of recovery in the next fiscal. 

Expensive valuations of IT stocks may also keep gains in check in the near term, analysts said. Today, the Nifty IT was among the worst sectoral performers and closed 0.7% lower, with most constituents in the red. 

In the fast-moving consumer goods space, quick commerce stocks may see some pressure, especially after the All India Consumer Products Distributors Federation filed complaints that these companies are violating the foreign direct investment regulations by operating inventory-based models, which are prohibited under the e-commerce policy. Zomato is among the top listed quick commerce players in India. 

Lower input costs and improved profitability could keep FMCG stocks a good bet among other sectors, analysts said, along with demand recovery and the government's thrust to improve rural consumption trends. 

Finance companies are in the midst of a normalisation of return on assets, brokerage firm Bernstein said, according to a CNBC TV18 report. Private sector banks do look attractive, indicating no premium for their current higher return on assets, the brokerage firm said. Bernstein said its top picks among financial stocks included HDFC Bank and Axis Bank, while it named Muthoot Finance as a top-pick among non-banking financial stocks.

For the cement sector, a sharper improvement in earnings is unlikely in the current weak pricing environment, global brokerage firm CLSA said, as per various media reports. This contrasts with the current market expectation, which is overestimating a sharp recovery in corporate earnings for cement companies, reports said.

Among specific stocks, IDFC Ltd and IDFC FIRST Bank will be in focus as the National Company Law Tribunal approved the merger of IDFC Financial Holding Co into IDFC and the merger of the combined entity into IDFC FIRST Bank. Both shares closed less than 1% lower each today.  End

Edited by Deepshikha Bhardwaj

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