Q2 results of banks, automobile cos to guide markets

The week gone by was favourable for 'equity' asset class which saw handsome gains across the globe. Lack of any major news flow saw value pickers back in bargain hunting. Though geopolitical concerns remain, and in all likelihood, will cap upside for equities in near term. The quantum of money being pulled out by foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) from Indian equities got reduced substantially while they trimmed down their bullish bets on Index futures. On sector front, most of them gained. banking index led from the front, gaining over 3.63%, followed by financial services (up 3.33%), infra (2.79%), IT (2.43%), metal (1.69%), pharmaceutical (1.01%), realty (2.07%) while auto corrected (-1.19%).

Earnings season has picked momentum. YES Bank, Reliance Industries, HCL Tech and Wipro reported a good set of 2QFY17 numbers while ACC disappointed on margin and volume front. Ultratech and ACC earnings update for 2QFY17 raised concerns on sustainability of margins going forward. Usually, the third and the fourth quarters of the fiscal are the high-growth quarters for cement companies. Though volume growth is expected, however, sustainability of margins will be a challenge as input prices have gone up and the extent of price hikes has not been proportionately favourable, so far. The floor for IT sector now seems to be in place as Infosys in its guidance appears to have factored in the worst while HCL Tech and Wipro delivered on the upper end of its guidance. Private Banks growth trajectory is intact, buoyed by traction in retail loan book.

In NBFC space, LIC housing Finance, Canfin Homes, Dewan Housing posted a stellar set of numbers. Earnings update from public banks will shape next big directional move in markets. SBBJ was the first PSU bank to report its 2QFY17 earnings and the disappointment has aggravated. It reported a year-on-year loss of Rs 2.10 billion versus a profit of Rs 1.8 billion, and loss of Rs 2.2 billion (QoQ). Its GNPA has risen to 10.5% versus 6.2% in the previous quarter. NNPA is at 7.17% versus 3.65% in the previous quarter and NII is down YoY.

This week, key earnings update will be dominated by private banks, FMCG and automobiles. The important results to watch for will be that of HDFC bank, HDFC, Axis Bank, Asian Paints, Dr Reddy's, Hindustan Unilever, Hero Motocorp, Bajaj Auto and Eicher Motors. We remain bullish on markets for long-term and advise accumulation of quality stocks at a reasonable value where businesses are focused on domestic consumption for driving revenue growth. We expect markets to have their share volatility in the ensuing week as well. Nifty is likely to trade in the broader range of 8450 to 8850 in near future.

The writer is head, retail research, MOSL