Q1 results to guide specific stock movement amidst sustained positivity

All sectors except private banks ended in green with PSU Banks up 8.5 per cent, followed by energy, auto and realty gaining more than 2 per cent each. Credit: iStock Photo

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All sectors except private banks ended in green with PSU Banks up 8.5 per cent, followed by energy, auto and realty gaining more than 2 per cent each.

This week, equity markets are likely to sustain their positive momentum as stock-specific action will pick up along with Q1 results. The earnings season will kick start with TCS and HCL Tech announcing their numbers on July 12, followed by Federal Bank and Wipro on July 13 and DMart on July 15.

On the economic calendar front - markets would react to inflation data from China released over the weekend while during the week, US and India’s retail inflation data would be in focus. Investors would also watch out for UK’s GDP data as it would provide some insights into the country’s economic growth.

Overall earnings growth is likely to be driven once again by domestic cyclicals such as banking, financial services and insurance and auto, which are expected to post 47 per cent and 11X YoY jumps while the O&G sector would report a 3x surge in profit YoY underpinned by the improvement in marketing margins of the oil marketing companies.

Also Read | Higher demand, lower inflation to drive annual growth: CII

Consumer and IT will likely report a healthy 19 per cent and 16 per cent YoY growth, respectively. Metals and cement are anticipated to drag the aggregates with a 53 per cent and 17 per cent YoY decline in earnings, respectively. We forecast the Nifty EPS to grow 20 per cent/15 per cent in FY24/FY25.

Healthy macros, range-bound oil prices, robust fiscal balance sheet and moderating inflation, make the backdrop for the market quite optimistic. Even, valuations are comfortable at ~20x FY24 P/E (around its long-period average) despite the market being at an all-time high. Thus the market is expected to continue its up move and remain buoyant.

Last week, domestic equities continued their dream run and scaled new highs. Nifty managed to cross 19,500 before ending the week with gains of 143 points (+0.7 per cent) at 19,332 levels giving up some gains on the last day of the week. The action was seen in the broader market with Nifty midcap 100 and small-cap 100 up +0.9 per cent and +2.6 per cent respectively.

All sectors except private banks ended in green with PSU Banks up 8.5 per cent, followed by energy, auto and realty gaining more than 2 per cent each. The private bank index was down 0.2 per cent and was dragged by profit booking in heavyweight. Foreign institutional investors were net buyers of Rs 8374 crore during the week while Domestic institutional investors were net sellers of Rs 3914 crore (until Thursday).

Global markets inched lower following the hawkish outlook from US Federal meeting minutes and stronger-than-expected US private jobs data, which have raised the probability of rate hikes by the US Fed in its upcoming meeting. Friday’s nonfarm payroll data and the unemployment rate would also be necessary for the potential policy path of the Federal Reserve.

Monsoon witnessed a sharp recovery with the countrywide rainfall deficit coming down to 5 per cent by Thursday from a steep deficit of 30 per cent a fortnight ago. As per IMD cumulative rainfall is predicted to reach a “normal” level during this week. Thus, sectors like fast-moving consumer goods and auto could continue to see smart gains.

Healthy Domestic macro data led key indices to reach new highs. GST collections grew by 12 per cent in June to above Rs1.6 lakh cr for the fourth time. India’s fiscal deficit narrowed from 12.3 per cent a year ago and stood at Rs 2.10lakh crore. Also, steady growth in India’s PMI data for the month of June at 57.8 boosted investors’ sentiments.

(The writer heads Retail Research at Motilal Oswal Financial Services Ltd)