Bulls may take a breather on D-Street

Markets roared back post three weeks of profit taking. Nifty rallied to all-time high, comfortably surpassed 9300 and closed the week with gains of 185 points, or 2.03% at 9304. The surge was propelled by benign global markets and results update by corporates. News flow on geopolitical concerns, monsoons and asset-quality trajectory of public sector banks will guide trading pattern. Firm liquidity flow is a stabilising factor. Domestic institutional investors bought around Rs 3,927 crore while foreign institutional investors sold around Rs 1,646 crore of equities. In the ensuing week, a slew of global and domestic events are lined up. Nikkie Manufacturing PMI and FOMC rate decision meeting outcome is on Tuesday and Nikkie Services PMI will be announced on Thursday. Companies like Bharat Financial, Dabur, Marico, Dewan Housing, ICICI Bank, Exide, HDFC, MRF, Tata Comm, Apollo Tyres, NIIT Tech, etc. will be announcing their quarterly results.

'Earnings so far so good' led by banking, financial services and insurance, specifically private banks and housing finance companies. Reliance Industries, cement companies and automobiles numbers came above estimates. Heartening was to see asset quality update by private sector banks. Axis Bank gross non-performing assets (GNPAs) stood at 5.04% vs 5.22% in the previous quarter. Total pool of gross stressed loans was largely unchanged at Rs 41,200 crore (10.2% of customer assets). Net stressed-loans proportion stood at Rs 28,300 crore vs Rs 27,900 crore a quarter ago. It's PAT of Rs 1,225 crore, beat our estimate of Rs 830 crore by 47%. Kotak Mahindra Bank's PAT grew 40% YoY to Rs 980 crore (10% beat). Strong core-operating profit (31% YoY) was led by healthy net interest income growth (16% YoY; 10 basis point, net interest margin improvement to 4.6%), acceleration in fee income (24% YoY) and controlled opex growth (+9% YoY). Absolute GNPAs increased 13% QoQ on a low base; largely stable in percentage terms at 2.6%. LIC Housing Finance (LICHF) reported 4QFY17 PAT of Rs 530 crore (+18% YoY), in line with our estimate.

The quarter was characterised by stable loan growth, margins improvement and stable asset quality. Loan book growth was 15.5% YoY (6.8% QoQ), in line with the trend witnessed over past five-six quarters. Indiabulls Housing Finance's (IHFL) PAT grew 24% YoY to Rs 840 crore (1% below our estimate) in a quarter that was characterised by strong disbursement growth (44% YoY), stable spreads and cost-to-income ratio. Maruti Suzuki delivered rock solid top and bottomline growth in excess of 20%.

Automobile companies would be reporting their monthly numbers of April 2017. We expect private vehicles (PV) to continue its growth momentum and outperform the auto industry growth in April 17. Two-wheeler and commercial vehicles' volume is expected to decline in April 2017 on YoY and MoM basis. Our channel check suggests, retail off-take in two-wheeler segment is expected to remain weak as a consequence of pre-buy of BS-III vehicles in the previous month. Maruti Suzuki is expected to outperform the PV industry, while we expect Ashok Leyland and TVS to outperform the CV and 2W industry respectively.

Ensuing week is likely to see profit taking amidst consolidation in headline indices. Corporate health of Indian companies is better but valuations now looks stretched particularly for mid and small-cap stocks. Liquidity has been very strong; especially flows from DII which has been key driver of markets of late. The sprint to 9300 on Nifty has been too fast. Markets may pause to catch on breath.

TIME TO CASH IN?

• The week is likely to see profit taking. Liquidity has been very strong especially from DIIs
   
• The sprint to 9300 on Nifty has been too fast. Markets may pause to catch on breath

The writer is head-retail research, Motilal Oswal Securities Ltd