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Informist, Friday, Jan. 10, 2025

By Anshul Choudhary

MUMBAI – Strong buying in information technology companies failed to lift the market, and the benchmark indices still ended lower, with even sharper declines in the small-cap and mid-cap indices. Analysts are worried that the market consensus for the December quarter earnings might be too optimistic and downgrades are a big possibility as the earnings season unfolds.

IT stocks shone in an otherwise weak market after the strong deal flows of Tata Consultancy Services during the December quarter helped lift sentiment around the sector. Shares of TCS rose nearly 6%, and others followed with Tech Mahindra, Wipro, Infosys, and HCL Technologies up 2.5-4%.

"There are two things different for TCS in terms of its order book now: it doesn't include the BSNL deal, also there is no mega deal, and it is more spread out into smaller deals. All of this means the company's deal-to-revenue conversion should improve going forward," Abhishek Kumar, a research analyst covering the IT sector at JM Financial Institutional Equities, said.

Barring the IT stocks, most sectoral indices fell, indicating there was weakness across the board. Financial stocks continue to be a major drag on the index amid worries over their credit growth and high costs. Due to this, the Nifty 50 failed to hold on to its support of 23500 points and closed at 23431.50, down 0.4%. The Sensex closed at 77378.91, down 0.3%. Broader market indices recorded a big fall and the Nifty Smallcap 250 and Nifty Midcap 150 fell over 2% each.

Talking about the December quarter earnings in a report, JM Financial Institutional Securities made some stark remarks. The broking firm said that nearly half of the companies it tracks are at risk of downgrades as they expect only modest earnings growth in the December quarter. JM Financial expects the Nifty 50 companies' net profit during the quarter to grow 5.8% on year. If earnings do drop to this level, the brokerage may be forced to cut estimates for the full year.

Among the big losers, banking stocks were again some of the worst hit. Canara Bank, State Bank of India, HDFC Bank, and Bank of Baroda have lost 6-7% so far this month on worries around slower-than-expected credit growth during the December quarter. Even on Friday, banking stocks fell, with Union Bank of India and Bank of India down over 4% each, and index-heavyweight HDFC Bank down nearly 1%. Owing to this, the Nifty PSU Bank index fell nearly 3% and the Nifty Bank index was down 1.6%.

Within the financial services sector, Shriram Finance was down over 5% as it traded ex-split. In October, the company had approved the split of one equity share into five. Among others, shares of IndusInd Bank fell 4.4% after Goldman Sachs downgraded the stock to 'neutral' from 'buy' and reduced the target price by 17% to INR 1,090. The brokerage expects the company's revenue growth to come down due to slower growth in loans and rising delinquencies in micro, small, and medium enterprise loans and commercial vehicle loans.

The worries around slowdown in earnings growth had a bigger impact on the broader market as several mid-caps and small-caps are trading at high valuations. The Nifty Midcap 150 has lost over 4% so far this month and the Nifty Smallcap 250 has fallen over 5%.

Shares of Tata Elxsi fell nearly 7% after the company's disappointing earnings for the December quarter, which were reported after market hours Thursday. The company's performance was hit by a sharp deceleration in its transportation business, HDFC Securities said in a research report. Business challenges in the automotive vertical, particularly in Europe, led to the delay in new deal closures, the brokerage said.

Shares of Indian Renewable Energy Development Agency fell 7% despite the company reporting a 27% year-on-year rise in net profit for the December quarter. The company also reported a decline in its asset quality, with the gross non-performing asset ratio rising to 2.68% as of Dec 31, against 2.19% a quarter ago.

There were several other stock-specific reactions. Shares of Adani Wilmar hit the 10% lower circuit after promoter Adani Commodities said it would sell its stake through an offer-for-sale at INR 275 per share, a discount of 15% from Thursday's close. The stock closed on Friday at INR 291.10.

Among sectoral indices, the Nifty Media index was the worst hit, falling 3.6% as shares of Dish TV fell nearly 10% and those of Zee Entertainment Enterprises fell nearly 6%. The Nifty Realty index was down 2.8% following a decline in shares of Oberoi Realty, Raymond, and Godrej Properties, among others.

* Of the Nifty 50 stocks, 14 rose and 36 fell

* Of the Sensex stocks, 9 rose and 21 fell

* On the NSE, 552 stocks rose, 2,287 fell, and 71 were unchanged

* On the BSE, 827 stocks rose, 3,167 fell, and 84 were unchanged

* Nifty Media: down 3.6%; Nifty Realty: down 2.8%; Nifty IT: up 3.4%

BSE                                               NSE

Sensex: 77378.91, down 241.30 points or 0.3%      Nifty 50: 23431.50, down 95.00 points or 0.4%

End

Edited by Rajeev Pai

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