Home >Markets >Mark To Market >Market outlook: IT results keep the spirits up, but valuations are stretching
Nevertheless, the market is also defying ground realities, thanks to liquidity flows (Photo: Mint)
Nevertheless, the market is also defying ground realities, thanks to liquidity flows (Photo: Mint)

Market outlook: IT results keep the spirits up, but valuations are stretching

  • The market's mood could be tested as several private sector banks and financial firms are set to declare their results this week.
  • The focus is also likely to continue on Reliance Industries this after its AGM. Several initiatives such as the partnership with Google seems to have gone down well with the markets

So far, so good on the results front. In fact, the Q1 figures have been a picture of resilience. Both technology and consumer companies that have declared results so far have set a positive tone for market sentiment.

While the economy is lumbering, IT stocks were least impacted by the lockdown and managed to beat Street estimates. Other Nifty heavyweights continue on the growth path. HDFC Bank Q1 numbers were steady, despite the turbulence in Q1.

But the market's mood could be tested as several private sector banks and financial firms are set to declare their results this week. All in all, more than 250 companies are set to declare their results, which include several Nifty 50 companies. Among them, engineering, discretionary goods firms and insurance companies will also reveal how much covid-19 has disrupted businesses.

The focus is also likely to continue on Reliance Industries this after its AGM. Several initiatives such as the partnership with Google for an Android-based smartphone for India seems to have gone down well with the markets. After all, the Reliance stock has heavy-lifted the market this past month with gains of nearly 10%.

IT companies result have shown positive surprises on the operations front. After bellwether TCS’ results, Infosys figures were steady with its first quarter pipping those of TCS and Wipro.

But even Wipro’s Q1 figures largely outpaced the market’s expectations. Besides, its operating profits were more resilient than TCS’.

Other technology companies such as MindTree and L&T Infotech navigated the turbulent Q1.

For consumer staples firm Britannia, the lockdown has been a boon. The company’s 11-12 day inventory before the pandemic has whittled down to about 2-3 days currently as people stocked up biscuits and other staples.

Hindustan Unilever is debating whether to hold on to its tea business, but analysts reckon that it could augur well in covid-19 times.

But for Bata, the pandemic may have slammed the brakes on sales of high-end discretionary items.

It’s been a slow and gradual pick up for cement companies, though largely driven by rural consumption. The uptick is not even across India, but the signs are encouraging, as the June quarter channel checks show.

For Auto, the road to recovery is still bumpy. While sales have resumed, they are still in low gear.

Pharma’s improvement in June after a sharp slump in April and May’s domestic sales bodes well.

In the case of life insurance companies, the pandemic has meant that insurance products could not be pushed as before.

India’s business confidence, though, seems to be waning. That’s what IHS Markit’s tri-annual survey in June showed among Indian firms as compared to the others.

Nevertheless, the market is also defying ground realities, thanks to liquidity flows. The Nifty 50 index is just about 100 points away from the psychological 11000 mark, which seemed difficult to achieve just a few months ago. Both note that while covid-19 cases and valuations continue to rise, lockdowns at a regional level are intensifying and remains a worry.

With the swift run-up, valuations of many sectors have turned rich, a recent Asia-Pacific report of UBS Securities points out. “The number of new cases is still rising and we, therefore, have less confidence about the speed at which lockdowns can be eased. Although generally more cyclical than many South Asian markets, valuations are more expensive compared to recent history," it says. So, valuations should be watched for potential profit booking in the coming time.

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