Markets are heading into choppier weather as financials begin to bite

Heading into next week, Indian markets face a rougher road. Stocks are expected to see-saw in anticipation of weak fourth-quarter GDP figure, to be announced on Friday. But this is likely to be uninspiring.

A lack of triggers is evident as the market has been moving sideways for the last few weeks. The risk appears to be skewed on the downside as covid-19 related stress has been evident in many corporate results announced so far.

While the third-quarter GDP grew 4.7%, the Q4 figure is likely to have contracted as manufacturing and export activity shrunk in March. A weak GDP would also mean that the RBI could further cut interest rates in June when the next policy meet is due.

Indeed, the markets have not been very impressed with the RBI’s 40 basis point cut in the repo rate. The moratorium on loan repayments has been further extended to 31st August. Even as bond yields have contracted a little, the equity markets fell. Financials were even more badly bruised as can be seen from the Bank Nifty that slipped 2.6% on Friday.

Some of the results of last week were uninspiring. While nobody expected much from Colgate Palmolive (India) Ltd’s March quarter results, the numbers still belied expectations. The impact of covid-19 is evident, while the stock still seems to be overvalued.

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

Nevertheless, there were some decent results amid all the gloom. In fact, Bajaj Auto’s March quarter took investors by surprise as the company posted an increase in Ebitda margins. But the coming quarters will be a test.

L&T Infotech Ltd’s results were positive. Even as the top eight IT firms’ revenues dipped sequentially, LTI dollar revenues grew more than the Street estimated.

The lockdown is affecting patient and business volumes of diagnostic firms. But the stock of Dr Lal Pathlabs Ltd is trading at more expensive valuations than others despite the disruption in business.

The lockdown is weighing heavily on the financial sector. Twin blows of low growth and a potential rise in slippages are headwinds. The stock has reacted considerably in the past few months.

That seems to be the case with most financial and banking stocks. In 2020, the Bank Nifty has been hammered as banks face a low growth scenario while the extended moratorium on repayment of loans roils many a bank’s balance sheet.

Further, the RBI has not announced any restructuring mechanism. “We are a bit disappointed with this. We feel though the RBI will revisit this in due course. Additionally, there were no sector-specific measures targeted to improve transmission. Our view has been that rate cuts beyond a level is not going to help push transmission. The negative outlook on GDP growth with no definitive numbers is not unexpected, and in a way, reflects the uncertainty,” said Amit Khurana, head of equities, Dolat Capital Market Ltd in a note.

Needless to say, the Bank Nifty has heavily underperformed the broader Nifty 50 in 2020. Against a 26% fall in the Nifty 50 since January, the Bank Nifty has nosedived 46% so far. With about a 36% weighting in the Nifty, the Bank Nifty is crucial for any pacing of the market. At the moment, it seems like that’s a big ask.

Markets are heading into choppier weather as financials begin to bite via @MasterMindUpdate
  • Save
Share via
Copy link