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Informist, Tuesday, Oct. 22, 2024

By Alina Geogy

MUMBAI – The sell-off in Indian equities continued Tuesday and became deeper, with the broader market also falling sharply. The Nifty mid- and small-cap indices fell to two-month lows, in tandem with the benchmark indices. Analysts said the weaker-than-expected corporate earnings for the September quarter were the primary reason for the sell-off in the market. A whopping 86% of all NSE-traded stocks ended lower Tuesday. Only one stock in both the Nifty 50 and Sensex indices ended with gains, while all other constituents ended down.

Foreign institutional investors have been net selling Indian equities for most sessions this month, and this has weighed heavily on the market, analysts said. Tuesday, the Nifty 50 shed its initial gains and closed at 24472.10 points, down 1.3%, and the BSE Sensex closed at 80220.72 points, down 1.2%. All sectoral indices ended lower, with the Nifty PSU Bank and Nifty Realty indices being the worst hit. The Nifty PSU Bank fell over 4%.     

Several mid- and small-cap stocks, such as those of public sector enterprises, had surged in anticipation of earnings growth and good returns, the head of research at a domestic brokerage firm said. However, most companies' earnings have disappointed rather than at least meeting those earnings expectations, he said. Even if some companies' quarterly financial performance managed to meet market expectations, these disappointed investors with dull management commentary or a cut in guidance, he said.

After a positive opening, Indian equities fell in early trade following US and Asian markets that were weak after US bond yields rose to a 12-week high on concerns that the US government's fiscal deficit is likely to rise irrespective of which candidate wins the presidential elections. This would imply any future cuts in key interest rates by the US Federal Reserve would be modest and would take far longer than anticipated so far. The rise in US yields and the outflow of funds from emerging markets such as India have affected both US as well as Indian stocks, Siddhartha Khemka, head of research at Motilal Oswal Financial Services, said in a note.

The broader market indices fell even more than the benchmark indices and fell 2-4%. The Nifty Smallcap 100 fell 3.9% and was the worst hit, marking its fifth-largest decline this calendar year. The biggest decline this year was on Jun. 4, when Lok Sabha election results were declared and the Nifty Smallcap 100 fell 8.2%. The broader gauge, the Nifty 500, also fell nearly 2%. Nearly 160 stocks on the NSE hit a 52-week low, while 330 stocks hit a lower circuit, as per data from the exchange.

Among the latest companies that disappointed on the quarterly earnings front were Nifty 50 constituent UltraTech Cement, mid-cap firm Supreme Industries, and others such as Kajaria Ceramics and HFCL. Weaker-than-expected earnings reported by UltraTech Cement in the previous session pushed investors to sell the stock for the second consecutive day Tuesday. The cement company's consolidated net profit for Jul-Sept missed analysts' estimates by a wide margin, falling 36% on year to INR 8.2 billion. The company's poor operating performance and lower cement volumes in the quarter were the key factors for the weak earnings. Some brokerage firms cut earnings estimates and target prices for the stock, citing the subdued growth in demand and weak pricing environment.

Shares of Supreme Industries extended losses and ended down 10% after the company's consolidated net profit for Jul-Sept could not meet analysts' estimates. Supreme Industries also cut its volume guidance for plastic pipes for 2024-25 (Apr-Mar) to 16-18% from 25%. Shares of Kajaria Ceramics fell 5% after the company's consolidated net profit for Jul-Sept missed analysts' estimates. Shares of HFCL fell 8% after the company reported a sequential decline in both consolidated net profit and sales for the September quarter.

Investors may have found some respite in the fact that some companies bucked the overall trend and reported better-than-expected earnings for the September quarter. Shares of Varun Beverages turned positive and gained nearly 3% after the company's net profit and revenue for the quarter beat analysts' estimates. Shares of City Union Bank rose 12% and outshone all peers in the Nifty 500 index. Some brokerage firms upgraded the stock's rating and raised its target price after the bank's net profit for the September quarter beat the Street's expectations.

Shares of defence companies Mazagon Dock Shipbuilders and Garden Reach Shipbuilders & Engineers fell 11% and 13%, respectively, and were the worst-hit in the Nifty 200 index. Investors are probably reshuffling their portfolios and taking out some profits after these stocks' recent rally over the last two quarters, said Kripashankar Maurya, research analyst at Mirae Asset Capital Market. The stock had rallied recently amid news of fresh contracts from the government, he said. Mazagon Dock later in the day declared a 2-for-1 stock spilt and an interim dividend of INR 23.19 per share for 2024-25 (Apr-Mar).

Shares of Hyundai Motor India had a weak welcome to the exchanges amid the sell-off in the market. The automotive manufacturer's stock ended at INR 1,819.60, down 7% from its issue price of INR 1,960 after listing at a discount of 1.3% to the issue price. There isn't any upside left for the stock as there is no immediate trigger for it, according to analysts.

The company may not expand production capacity until 2025-26 and its margins are also expected to take a hit from the increase in royalty payment to its South Korea-based parent firm, a research analyst at a domestic brokerage firm said. "Bigger the size of the issue, bigger the concerns", the analyst said when asked about the stock's weak debut on the exchanges. There could have been some upside left if it had listed at INR 1,600-1,700, but now this upside potential has been absorbed in the high issue price, the analyst said. The stock price is expected to fall around 10% more to INR 1,700 within a month's time, the analyst said.

* Of the Nifty 50 stocks, 1 rose and 49 fell

* Of the Sensex stocks, 1 rose and 29 fell

* On the NSE, 331 stocks rose, 2,507 fell, and 67 were unchanged

* On the BSE, 494 stocks rose, 3,499 fell, and 65 were unchanged

* Nifty PSU Bank: down 4.2%; Nifty Realty: down 3.4%; Nifty FMCG: down 0.5%

BSE                                               NSE

Sensex: 80220.72, down 930.55 points or 1.15%     Nifty 50: 24472.10, down 309 points or 1.25%

End

Edited by Akul Nishant Akhoury

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