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Photo: Reuters
Photo: Reuters

Markets may find enough support as Q1's cost control measures come to the rescue

The RBI’s recent policy measure aimed at restructuring corporate loans in its recent policy meet will give leeway to banks and corporates to address issues surrounding the banking sector

Many stocks are rising as if the pandemic did not happen. Had it not been for the banking sector, then perhaps the bellwether Nifty 50 would again be nudging its all-time highs. In fact, excluding bank stocks, the Nifty 50 has already surpassed its previous peaks, say analysts.

But now it seems like the banking sector may again start to participate in the rally. Both the Nifty Bank and Nifty PSU index rank among the worst performers among sectoral indices in 2020 tumbling about 32% and 43% this year. Contrastingly, the Nifty 50 lost just 8% since January.

The RBI’s recent policy measure aimed at restructuring corporate loans in its recent policy meet will give leeway to banks and corporates to address issues surrounding the banking sector.

Of course, the RBI has announced that the restructuring will be allowed to only well-behaved borrowers. It will ensure that the NPA problem is not kicked down the road. You can read more about the finer implementation of the restructuring exercise here.

Talking of the banking sector, the Street has also given a thumbs up to the HDFC Bank stock after the announcement of Sashidhar Jagdishan as a successor to the charismatic Aditya Puri. The continuity that Sashidhar Jagdishan brings is an advantage.

Stocks are also taking cues from the lower costs this quarter. A large-chunk of corporates declared an Ebitda loss that is about 30-40% better than the street’s expectations. Of course, there’s no need to be too sanguine about sustaining these costs just yet. Companies may still have to pass these costs to customers, which you can read about here.

Of course, some companies are basking in the positive sentiment so far. Shares of Tata Consumer Products Ltd have seen a massive re-rating since it announced its restructuring. It is almost quoting at valuations like big names such as Britannia command.

But this is also because of the defensive characteristics of the consumer non-durable sector. Such is the attraction that the positives are also rubbing off on Godrej Consumer Company Ltd’s stock, despite its not-so-good Q1 results.

One can also see this from the resilience shown by the Colgate Palmolive Ltd stock, despite sluggish revenue growth.

But for the likes of Vodafone Idea, even a tariff hike has not translated into revenue growth in Q1. The firm, in fact, reported a revenue drop of 4%.

Metals stocks have been getting the Street’s attention. Metal stocks climbed higher as demand is seen climbing back while metal companies have also increased product prices.

Besides, some companies can derive extra value through the sharper focus on lower costs such as MCX.

Forward-looking markets have also been cheering the prospects of a recovery in the global market. Global manufacturing has accelerated as seen from the jump in the JP Morgan Global Manufacturing Purchase Managers Index. The index rose to a six-month high of 50.3 in July, showing that the post-pandemic global economy is expanding.

On that count, the government’s recent vocal for local initiative could also boost domestic manufacturing. It recently announced an increase in customs duty on compressors. A recent policy initiative to shore up defence production in India is a huge positive.

How much of this domestic push cheers the market remains to be seen. But there is action coming from all quarters of the market. Foreign investors are increasing their allocation. Retail investors are increasing their participation. That’s keeping the markets in good cheer.

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