Markets likely to swing on Q1 results; TCS, Infosys to be in focus
Mumbai: The markets are expected to consolidate further as investors gear up for June quarter earnings that kick off this week.
Uncertainties and disruption due to the implementation of goods and services tax (GST) and rupee appreciation are likely to impact first quarter results of Indian companies.
ICICI Securities Ltd said incremental uncertainty has come from the short-term impact of GST, state fiscal slippages due to farm loan waivers, bankruptcy proceedings against 12 large corporates and risks to short-term earnings. According to the brokerage firm, equity markets will consolidate in the short term given stellar performance this year and reiterated its Nifty target of 10,000 for March 2018.
According to Morgan Stanley, the next few months may witness moderation in absolute returns and higher volatility, especially down the cap curve. It added that sentiment indicators are pointing to a tactical price or time correction in the market but it will depend on global equity market trends. “Correlations across stocks have plummeted to a low, suggesting a big macro trade is in the offing. While the market appears to believe in a growth turn, it is far from pricing in a multi-year growth cycle, implying significant upside potential in the next 3-5 years,” it said in a report on 5 July.
Companies that will announce Q1 earnings this week are IT majors TCS and Infosys and IndusInd Bank, South Indian Bank, Karnataka Bank and DCB Bank, among banks. Analysts expect export-based sectors like healthcare and technology to be underperformers in terms of net profit decline. Rupee, which has risen 5.16% from January this year, may spell trouble for export-related businesses.
According to Kotak Institutional Equities, earnings before interest and taxes (Ebit) margin of IT companies would be impacted by rupee appreciation, visa costs and wage revision in Q1. It expects constant currency organic revenue range of 2.8% decline to 2.6% growth in Q1 and sees Infosys leading in organic growth.
Other stocks which will be buzzing this week are IDFC Ltd and Shriram Capital on merger proposal to create a single retail bank. On Saturday, Ajay Piramal, chairman, Shriram Capital, said, “The managements have been given 90 days to explore the merger and that share swap ratio will be decided after this.”
Also biotechnology major Biocon will be in focus as its drug product unit will need to be re-inspected even though it has received good manufacturing practices (GMP) approval for its biologics drug substance facilities from French Regulator ANSM.
ANSM conducted pre-approval inspection audits of Bengaluru-based drug substance and drug product sites.
In the primary markets, AU Small Finance Bank will be listed on exchanges on Monday. The issue which was open from 28-30 June was subscribed 53.60 times. With a price band of Rs355-358 per share, it raised Rs1,912 crore. The category reserved for qualified institutional buyers (QIBs) was subscribed 78.77 times, while the portions reserved for non-institutional investors and retail investors were subscribed 143.51 times and 3.52 times, respectively.
On the macro data front, industrial production data for May and inflation data based on consumer price index (CPI) and wholesale price index (WPI) for June will be released this week.