With the gush of liquidity in the markets, thanks to the balance sheet expansion by major central banks, the markets need only an excuse to rally.
This week, the reason for the optimism is likely to be hopes from the upcoming budget. Pre-budget rallies are fairly common in the Indian markets, and with expectations of a cut in tax for individuals, this year is no different.
In three out of the past four years, such rallies have delivered returns decent for investors. So, from the looks of it, the market momentum remains a tad tilted on the positive side this week.
Interestingly, when the stockmarket resumes trading on Monday, it would also be responding to the quarterly results of Reliance Industries Ltd (RIL), Tata Consultancy Services Ltd (TCS), and HDFC Bank Ltd, the three biggest heavyweights in Indian market indices.
The results were a mixed bag. RIL’s performance was soft in key segments such as refining, petrochemicals and telecom, with only the retail business shining bright. The company’s debt reduction programme has begun in earnest, which will partly offset the disappointment with the numbers.
Growth at TCS nearly grinded to a halt and while HDFC Bank’s reported profit was ahead of estimates, its asset quality weakened a tad and provisions for bad loans spiked.
These heavyweights may be a little wobbly in initial trading, although given the lack of many decent alternatives in the markets, hardly anyone expects a major correction.
Some more index heavyweights, particularly the large private banks, are expected to deliver results this week such as Kotak Mahindra Bank Ltd, Axis Bank Ltd and ICICI Bank Ltd. These banks are expected to heavy-lift the earnings this results season and if they walk the talk, the bellwether’s indices will get an earnings lift. A key to watch out will be asset quality related parameters.
Eyes will also be peeled on the figures emerging from engineering heavyweight Larsen & Toubro results the next week, which would shine a light on how the capex recovery in the economy is shaping up.
Analysts have already wound down December quarter numbers factoring the economic slowdown. December 2019 earnings are expected to grow by about 4.7%, excluding banks and oil and gas companies, according to Kotak Institutional Equities.
And then the US-China trade deal has sent major global markets into uncharted territory and the positives are rubbing off on Indian markets.
The buoyancy in the market can also be seen from the middling reaction to the Supreme Court’s dismissal of telecoms companies’ review pleas regarding adjusted gross revenue liabilities. Despite the fact that some bank stocks exposed to the telecoms sector could be hit, by and large, the markets have held up well.
That said, investors may be warming up to the riskier assets. Increased activity in some of the small and mid-caps are visible. Volumes in these counters have started to rise. The S&P BSE Mid-cap and Small-cap indices have firmed up more than 4% last week, compared to about 1% gains in the bellwether BSE Sensex.
As long as there are no negative surprises, it seems there’s hope for the markets, despite their high valuations.