IT earnings, macro data to drive markets this week

Earnings in the third quarter is expected to be healthy, driven by the financial and auto sectors. Overall, with the supply chain woes improving and benefits of cool-off in commodity prices kicking in, the profitability should remain buoyant for the quarter.

Growth momentum in banking will be propelled by healthy loan growth, margin expansions, and continued moderation in provisions. Sustained robust demand post-festive for autos, along with the benefits of commodity prices and operating leverage, would drive their earnings.

IT, on the other hand, would continue to be weak given the challenging macro environment and continued supply headwinds. However, rupee depreciation would provide some aid.

The market volatility is likely to continue given global uncertainties, the start of earnings season and the budget being less than a month away. Some of the banks have announced strong pre-quarterly business updates indicating good results ahead, which could keep the sector in limelight.

Other sectors like insurance, fertiliser, capital goods, and agri-related stocks can see some momentum in anticipation of development in the upcoming budget. Sectors benefiting from lower crude oil prices are likely to remain in focus. Metals may continue the northward movement, benefiting from the exports duty hike in China, along with a fall in the US dollar index – which is down to 7 month low at 103.

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Domestic equities started the new year with bearish sentiments as Nifty lost 1.4 per cent in the first week. The US Fed while agreeing to slow its pace of interest rate hikes, maintained its hawkish stance.

The Fed meeting minutes showed that the officials remained committed to continuing with their restrictive policy as inflation holds at unacceptably high levels. Even the broader market ended on a weak note with the majority of sectors witnessing selling pressure.

Only defensive sectors like FMCG & pharma were up for the week with gains of ~0.5 per cent. Stocks linked to crude oil were in focus after oil prices corrected sharply by 10 per cent during the week. NBFC stocks witnessed profit booking after Bajaj Finance’s pre-quarterly business update highlighted lower-than-expected asset under management (AUM) growth.

Nifty ended below the psychological 18000 mark and is likely to remain weak, in the absence of any positive triggers. Global markets would react to the release of the US monthly jobs report and key Eurozone inflation data. On the domestic front, the onset of Q3 earnings would provide a fresh direction to the market. Overall the expectation is running high and any disappointment could cause profit booking in the market.

The IT sector is likely to remain in the limelight as tech majors would be among the first to announce their results starting with TCS on Monday, followed by Infosys, HCL Tech, and Cyient on Wednesday. Banking heavyweight HDFC Bank would report its results on January 14 (Saturday) and would set the tone for the BFSI sector.

(The author is the Head – Retail Research, at Motilal Oswal Financial Services Limited)