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Informist, Wednesday, Oct. 16, 2024

By Alina Geogy

MUMBAI – Benchmark indices ended lower for the second consecutive session Wednesday, dragged down by losses in information technology stocks. Losses in global markets and stretched valuations were key factors for the weakness, analysts said. Worries about subdued earnings for domestic companies also weighed on investors. However, the fall in the indices was limited by gains in select financial and oil and gas heavyweights.

Losses in the domestic market followed losses in the US and Asia where indices ended lower following a sell-off in chip stocks. While there were a few attempts at recovery in the local market, indices remained lower for most of the session as IT stocks weighed them down. The Nifty 50 closed at 24971.30 points, down 0.3%, and the BSE Sensex closed at 81501.36 points, down 0.4%.

In the IT space, shares of Infosys and Tata Consultancy Services were the top contributors to the losses in the Nifty 50. Most constituents in the Nifty IT index also ended with losses, taking that index down over 1%. Investors are not very impressed with the quarterly earnings announced by IT companies so far and expect others from the sector to also post subdued earnings, analysts said. Now, with this anticipation largely priced in, investors will look forward to management commentary for clues about any improvement in demand, they said.

While HCL Technologies reported better-than-expected earnings for Jul-Sept and even marginally tweaked its guidance range, sectoral peer TCS's earnings missed analysts' estimates. There is also uncertainty about the business prospects for Indian IT firms ahead of the US presidential election and the US Federal Reserve's next monetary policy meeting, which is but a month away. 

Shares of select automobile stocks, such as Hero MotoCorp and Mahindra & Mahindra, ended around 2% lower each and were also a drag on the benchmark index. The September quarter has been a weak period for automakers amid a build-up in inventory levels and lower-than-expected push from festive sales so far. However, sales could improve in the next quarter, especially as many of these manufacturers are coming up with attractive discounts.

Investors primarily focused on corporate earnings as several brokerages shared their views and reassessed their ratings and target prices. Shares of HDFC Life Insurance rose nearly 2% to be the best performer in the Nifty 50 index after positive commentary from the management, which said it expects margins to improve in Oct-Mar. The stock had fallen nearly 4% Tuesday after the company's value of new business margin for Apr-Sept declined on year and missed the company's guidance.

The company's margins were weak in Apr-Sept but are expected to pick up from the December quarter onwards owing to a better pricing environment and renegotiations with distributors, a research associate covering the sector at a domestic brokerage said. In Apr-Sept, margins contracted as the insurer's product mix was skewed towards unit-linked insurance plans and non-participating insurance products rather than annuity products, he said.

Shares of HDFC Asset Management Co. rose 6% after some brokerages, including Jefferies and CLSA, raised the target price by 9%-14% and raised earnings estimates for the stock after the company reported a 32% year-on-year growth in net profit for Jul-Sept. The company reported strong on-year growth in revenue for Jul-Sept owing to better-than-expected yields, led by strong growth in equity assets under management, PL Capital said in a report. The company's net profit for Jul-Sept, however, missed analysts' estimates because of an increase in its tax outgo due to the withdrawal of the indexation benefit on investments.

Investors may have also found some respite in the fact that sales by foreign portfolio investors have decreased over the past few days. These investors have been selling for 12 consecutive sessions. The intensity of selling has largely "dried up", Onkar Kelji, research analyst at IndSec Securities, said.

The market has now priced in the outflows to China after that country's latest economic stimulus measures, Kelji said. While selling by foreign investors may continue in the short term, they still have faith in the India story. While cheaper stock valuations in the world's second-largest economy may be tempting for global investors, the rate of economic growth in India and the prospects of infrastructure development surpass those in China.

Among other stocks, shares of Trent fell nearly 4% as investors probably took out their profits. The retailer's stock had risen sharply over the past few weeks after reports of expanding its network of stores, the launch of a jewellery line Pome, and a deeper foray into the affordable beauty segment with the launch of the brand Zudio Beauty. The company's current strategy is to aggressively increase the number of its Zudio stores, which are boosting sales and giving tough competition to peer Aditya Birla Fashion and Retail, a research analyst at a domestic brokerage said.

Announcements about new construction orders also boosted sentiment towards some stocks. Shares of PNC Infratech hit a one-month high and closed over 4% higher after the company received two letters of acceptance from Maharashtra State Road Development Corp. for road projects worth INR 46.30 bln. Shares of GR Infraprojects also rose over 5% after the company received a letter of acceptance with a contract price of INR 18.86 billion from the same corporation to construct a ring road in Pune. However, the stock could not sustain the gains and closed just 1% higher. Shares of BEML rose over 4% a day after the company said it secured an order worth INR 8.67 billion from Integral Coach Factory, Chennai, for two high-speed trainsets.

* Of the Nifty 50 stocks, 17 rose and 33 fell

* Of the Sensex stocks, 8 rose and 22 fell

* On the NSE, 1,422 stocks rose, 1,366 fell, and 83 were unchanged

* On the BSE, 2,021 stocks rose, 1,941 fell, and 106 were unchanged

* Nifty Auto: down 1.3%; Nifty IT: down 1.2%; Nifty Realty: up 0.6%

BSE                                               NSE

Sensex: 81501.36, down 318.76 points or 0.39%     Nifty 50: 24971.30, down 86.05 points or 0.34%

End

Edited by Rajeev Pai

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