Markets Head For More Choppy Weather As Finances Start To Bite

As next week approaches, Indian markets face a tougher road. Shares are expected to tip in anticipation of a weak fourth quarter GDP figure, which will be announced on Friday. But it may be irrelevant.

A lack of triggers is evident as the market has moved sideways over the past few weeks. The risk appears to be biased downward, as the stress of covid-19 has been evident in many of the business results reported so far.

While third-quarter GDP rose 4.7%, the fourth-quarter figure is expected to have contracted due to the contraction in manufacturing activity and exports in March. Weak GDP would also mean that the RBI could cut interest rates further in June, at the next policy meeting.

Indeed, the markets were not very impressed by the 40 basis point cut in the RBI repo rate. The moratorium on loan repayments has been extended until August 31. Although bond yields contracted a bit, equity markets fell. Financials were even more damaged as evidenced by Bank Nifty which slipped 2.6% on Friday.

Some of the results from last week were irrelevant. While no one expected much from Colgate Palmolive (India) Ltd’s March quarter results, the numbers have consistently belied expectations. The impact of covid-19 is evident, as the stock still appears to be overvalued.

Another company affected by covid-19 is Havells Ltd. While the company started 2020 on a good note showing expansion, March sales were slow due to the disruption in the supply chain from China.

Nonetheless, there have been decent results amid all the gloom. In fact, Bajaj Auto’s March quarter surprised investors as the company posted an increase in its Ebitda margins. But the next few quarters will be a test.

The results of L&T Infotech Ltd are positive. Even though the revenues of the eight largest IT companies fell sequentially, LTI’s dollar revenues grew more than Street had estimated.

The lockdown affects the patient and business volumes of diagnostic companies. But Dr Lal Pathlabs Ltd’s stock is trading at more expensive valuations than others despite the business disruption.

Containment weighs heavily on the financial sector. The double blow of weak growth and a potential increase in slippages are headwinds. The title has reacted a lot in recent months.

This appears to be the case with most financial and banking stocks. In 2020, Bank Nifty was hammered as banks face a low growth scenario as the extended moratorium on loan repayments disrupts the balance sheets of many banks.

In addition, the RBI has not announced any restructuring mechanism. “We are a little disappointed with this. We believe the RBI will revisit this in due course. In addition, there were no targeted sectoral measures to improve transmission. Our view has been that rate cuts beyond a certain level are not going to help push transmission. The negative outlook for GDP growth without final figures is not unexpected and in a way reflects uncertainty, ”said Amit Khurana, head of equities at Dolat Capital Market Ltd in a note.

Needless to say, Bank Nifty significantly underperformed the Nifty 50 at large in 2020. Against a 26% drop in the Nifty 50 since January, Bank Nifty has plunged 46% so far. With a weighting of around 36% in the Nifty, the Bank Nifty is crucial to any market pace. At the moment, it seems like this is a big demand.

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About Jonathan J. Kramer

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