Markets to remain in consolidation mode as earnings pick up

This week, domestic equities are expected to remain in consolidation mode with stock/sector specific action as the Q3 earnings season picks up pace. The numbers, management commentary and guidance will be closely tracked by investors.

Donald Trump’s swearing in as the 47th president of the United States, on Monday and the following policy announcements will have a strong impact on the global market sentiments. On the macro-economic front, Bank of Japan’s interest rate decision, US and India’s preliminary release of manufacturing and services PMI for January, and the US jobless claims will be amongst the key data to watch out for.

Major earnings this week include HDFC Bank, Hindustan Unilever, Zomato and  Ultratech cement amongst others. Also, results of three major banks- ICICI, YES Bank and IDFC First Bank will be announced on Saturday.

Last week, Nifty fell by 233 points (1%) to 23,203, dragged by mixed Q3 earnings, the rupee hitting all-time low and heavy selling by foreign institutional investors (FIIs). Nifty Midcap100 and Smallcap100 indices ended flat. PSU Banks and metals outperformed, ending with gains of 3% each. Realty, media and FMCG indices posted losses of over 2% each.

Shares of IT companies were under pressure, with Nifty IT falling by almost 6% after Infosys, HCL Tech and LTIMindtree provided a more cautious view on discretionary recovery in the near term.

The Infosys management revised upwards the company's revenue guidance but implied a weak Q4 due to seasonality impact from lower working days, furloughs and absence of third-party revenues. It further reiterated that margins, in the near-term, would face pressure from the two-stage wage hike in January and April.

Nifty heavyweight Reliance Industries reported robust growth in key business segments, with strong performances in Retail and Oil-to-Chemicals. Its July-September quarter consolidated EBITDA was up 12% sequentially and 8% YoY) and came in 4% above our estimate, driven by a recovery in Retail.

Power stocks were in momentum as data from the Ministry of Renewable Energy revealed that India’s renewable energy capacity increased by 113% year-on-year to 30 GW by the end of 2024, up from 13.75 GW in 2023. Railway stocks rallied on the back of expectations that the government may increase the rail budget by 15-18% for FY26. 

Key macro data released last week include India’s headline CPI inflation which came down to a four-month low. However, the wholesale inflation increased to 2.4% in December, giving mixed signals on the domestic macro front.

There are ongoing anticipations in the market with regards to the upcoming Union Budget. It is expected that the budget could emphasize on infrastructure spending, with enhanced allocations towards power, railways, and defence. Renewables and power transmission are likely to receive significant push. Further, the budget could bring measures such tax changes for low-income individuals, new employment schemes and investment allowances in order to boost consumption.

(The author is head of Research, Wealth Management, Motilal Oswal Financial Services Ltd)