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Bulls may take a breather, value buying seen

Ensuing week will have plethora of Q3FY17 earnings update hitting the newswires which was marked by unprecedented event of demonetization

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Dharmesh Kant
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'Equities and bullions' continued with their outperformance in 2017 being top-performing asset classes globally. Indian equity basket, in confirmation with global peers, continued with its upward trajectory for third week. Nifty index gained around 1.98% on week-on-week basis and has gained over 6.50% from lows made in December. It was buying across the board where strong traction was observed in banks, infra, automobiles, IT, media, metals and energy stocks while pharmaceutical stocks came under selling pressure. Foreign institutional investors (FIIs) bought into index futures and index Call options, while remaining marginal buyers of index Put options. Their selling in cash segment has slowed down significantly.

The week gone by was marked with Q3FY17 earnings update by IT heavyweights and private sector banks along with industrial production and consumer inflation data for the month of November 2016. IndusInd Bank came out with strong set of numbers. Management's guidance made demonetization worries take a back seat. Its 3QFY17 PAT grew 29% YoY (5% beat) to Rs 750 crore, led by strong core operating profitability (4% beat). Asset quality remained stable quarter-on-quarter (QoQ), with gross non-performing assets (GNPA) at 94bp and put call ratio (PCR) at 59%. Core PPoP growth was impressive at 30% year-on year (YoY) (+8% QoQ), helped by strong net interest income growth (35% YoY, 8% QoQ; 4% beat), healthy fees performance (+7% QoQ, 22% YoY) and a controlled C/I ratio (~47%).

Despite the impact of demonetization, IIB reported stable net interest margins (NIMs), led by a sharp fall (-25bp QoQ) in cost of funds. Both corporate and consumer loans exhibited robust 25% YoY growth. Strong core profitability (3% of average assets v/s private banks' average of 2.5% and HDFCB's 2.7%), an improving CASA ratio (best among mid-sized private banks) and healthy return ratios (RoA of 1.9%+ and RoE of 16-18%) were the key positives.

Among IT biggies, TCS numbers were in line while Infosys earnings update was marked by weakness in top accounts which cast a shadow on future performance. On macro-economic front, index of industrial production (IIP) grew faster than expected while inflation was in line leaving hardly any scope for rate cut in February 2017. Consumer price index (CPI) eased to its 25-month lowest level of 3.4% in December 2016, lower than our expectation of 3.6% and market consensus of 3.5%. Separately, the IIP posted 13-month highest growth of 5.7% YoY in November 2016, slightly better than our expectation of 4.4% YoY and much higher than consensus of ~1%.

Ensuing week will have plethora of Q3FY17 earnings update hitting the newswires which was marked by unprecedented event of demonetization. We expect market to take a breather and consolidate around current levels. Value buying and light trading positions will be the flavour. Nifty is likely to be range bound within a zone of 8300 to 8500.

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

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