Earnings results, geopolitics to sway markets this week

The week ahead...

This week, the markets will take cues from domestic factors as we progress into the earnings season while the second phase of the Lok Sabha election will be held on April 26. Index heavyweights like Hindustan Unilever, Maruti Suzuki and Bajaj Finance will announce their results. Investors will also react to HDFC Bank Q4 result, which was declared over the weekend. Geopolitical issues will continue to dominate headlines and grab major investors mid-share during the week. Hence we expect markets to remain volatile in a broader range.

On the economic calendar front, the United States will be releasing GDP and PMI numbers while Bank of Japan’s policy statement and China’s loan prime rate will be in focus.

Markets last week saw sharp volatility amid escalating tension in the Middle East, mixed earnings globally and no visibility over rate cuts by the US Federal Reserve. Nifty declined by 372 points (-1.7%) to close at 22,147 levels. Midcap100 and Smallcap100 fell by 2.7% and 1.4% respectively. All the sectors ended in the red with IT being the biggest loser, down around 5% on the back of weak guidance and cautious outlook by sectoral giants Infosys and TCS.

A flare-up in geopolitical tension in the Middle East along with Hawkish US Fed comments are making investors restless. Moreover, foreign institutional investors sold Rs 20,000 crore of equity last week which added to the concerns. Crude oil prices briefly climbed back above $90 on escalation in tension between Iran and Israel.

Industrial metals too are continuing their uptrend following new US sanctions on Russian base metals and signs of economic recovery in China. On the other hand, US Fed chairman Jerome Powell continues to remain cautious about rate cuts and has not signalled any cut for 2024 so far.

January-March FY24 earnings season began last week on a mixed note with many heavyweights expected to announce their numbers over the next few days. Expectations of healthy earnings are keeping hopes high and providing strength to the markets. In the meanwhile, domestic economic data points too have been healthy so far. Retail inflation has eased to a ten-month low of 4.85% while the met department has predicted an ‘above-normal’ monsoon for this year, which is a big sentiment booster and will be positive for agriculture and rural-based stocks.

The International Monetary Fund also raised India’s GDP growth forecast for FY25 to 6.8% from 6.5%, on the back of strong domestic demand and a rising working-age population. Thus all these factors are showing strength in the markets and are leading to buying at lower levels.

(The writer is head – Retail Research, Motilal Oswal Financial Services Ltd)