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Besides, the markets got a jolt last week when AstraZeneca announced it is stopping further trials on its vaccine. (Photo: Mint)
Besides, the markets got a jolt last week when AstraZeneca announced it is stopping further trials on its vaccine. (Photo: Mint)

Profit-taking may keep the markets on its toes

While the economy has picked up in the past few months, and some indicators such as tractor and fertilizer sales are above pre-covid levels, most other sections of the economy are well-below peak levels. That will mean corporate profits will remain in the slow lane

Stock markets may be running low on fuel. With the earnings season ending, investors will now focus on the economy and recovery, which is not much encouraging. While the economy has picked up in the past few months, and some indicators such as tractor and fertilizer sales are above pre-covid levels, most other sections of the economy are well-below peak levels. That will mean corporate profits will remain in the slow lane.

Sebi’s recent circular on Multi-cap reallocation where funds have to invest equally in large, mid- and small-caps may also pile pressure on large-caps, say experts. Hence, the markets will need a raft of good news in the next few months to counter-balance the negativity.

Besides, the markets got a jolt last week when AstraZeneca announced it is stopping further trials on its vaccine. While the trials have resumed, market watchers are saying that a delay in launching the vaccine could cripple the economy for longer. The coming winter could see a second wave of covid-19. With cases ranging upward of 90,000 per day, the economic recovery is in question.

Hence, one can still not throw caution to the winds. Export import and trade data due to be released this week will also show that the global economy is in a slow recovery. So, there is lack of positive momentum for the markets.

Some large-caps, though, are on a tear. Reliance Industries became the first company to cross the $200 billion mark in market capitalisation among all Indian stocks. Reliance Industries is now unlocking the value in its massive retail chain, with expectations running high with regard to stake sales in the group’s retail venture.

Among other large-caps that were in the limelight recently is Tata Motors. There has been some recovery in sales at Jaguar Land Rover, but scepticism prevails among investors.

The recent favourable ruling for Dr Reddy’s Laboratories with respect to generic Vascepa can give the firm a boost in US revenues if launched soon. But the stock’s already quite richly valued.

In fact, there are one too many stocks that are expensive. HDFC Life Insurance is another example even as investors prefer it among insurance firms.

Also, market observers say that further recovery in the mid- and small-cap segments can be ruled out post Sebi’s new circular. Most small and mid-cap stocks have run up significantly after March, but it will take a long time for their earnings to catch up. Besides, fund houses have till January to comply with the new re-allocation rules.

Meanwhile, the US stock markets are also running low on power after rallying sharply over the past few months. Indian markets have been closely mimicking the US markets, and any sell-off there could impact India as well. In fact, the US markets are likely to remain volatile now that it’s the last leg of the US elections. The tech rally that drove US stocks is also out of steam as profit-taking is becoming the new mantra.

The fact is that Indian markets are also seeing some profit booking happening looking at how many stocks have dipped the last few weeks. Stock valuations, however, continue to look expensive despite the drop in prices. That’s the reason why expectations of the bull trend continuing may be too early.

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