Stock-specific action seen in result heavy week

Nifty was largely flat for the last week after touching 10252 despite positive sentiments in the market on the back of both strong earnings and Diwali. On the macro front, September inflation was largely unchanged while August Index of Industrial Production (IIP) surprised on the upside.

The Consumer Price Index-based inflation remained unchanged month on month at 3.3% in September 2017. This was marginally higher than our expectation of 3.2% but lower than the market consensus of 3.6%. Food inflation eased slightly to 1.3% in September 2017 while core inflation touched a six-month high of 4.6%. The uptick in core inflation was largely on account of a surge in housing inflation.

Furthermore, the IIP grew 4.3% year on year in August, exceeding our/consensus estimate of 2.4%/2.6%. A recovery was observed in manufacturing, along with a surge in mining activity and electricity generation. We expect headline inflation for the second half of this fiscal to remain in line with the Reserve Bank of India's (RBI) projections but also see some downside risks. Hence, we believe that there is still some room to cut interest rates.

On the earnings front, Axis Bank reported disappointing earnings with net profit came in at Rs 43,200 (down 67% quarter on quarter), dragged by higher provisions and weak revenue growth. Fresh slippages spiked to Rs 8,936 crore, driven by NPL divergence of Rs 4,867 crore. Federal Bank reported strong operating performance with stable asset quality and robust pre-provision operating profit (PPoP) growth of 5%/23% quarter on quarter/year on year. Bajaj Finance’s second-quarter net profit increased 37% year on year to Rs 557 crore. Performance across parameters was largely in line with the trend.

The assets under management (AUM) continued its robust growth trajectory (+38% year on year, +5% quarter on quarter) to reach Rs 72,100 crore, led by impressive growth in consumer finance (+42% year on year) and commercial business (+57% year on year). Dewan Housing Finance’s second-quarter net profit grew 26% year on year to Rs 290 crore. The quarter was characterised by sturdy AUM growth, a healthy decline in C/I ratio, continued decline in the cost of funds, and mild expansion in return ratios. AUM grew 25% year on year to Rs 94,100 crore, largely driven by 50% year-on-year disbursement growth.

As expected, MAS Financial had a stellar listing and Reliance Nippon Life AMC IPO is likely to open this week. This week will result heavy as we have big results which are Indiabulls Housing Finance, HDFC Bank, ICICI Prudential, Infosys, HCL Technologies, PNB Housing, IDFC Bank, ICICI Bank, ITC and Maruti Suzuki. While we believe that the broader market is likely to remain rangebound due to lack of macro triggers, the stock-specific move is likely to continue in the weeks to come.

KEY EVENTS THIS WEEK

• MAS Financial had a stellar listing and Reliance Nippon Life AMC initial public offering is likely to open this week
   
• Indiabulls Housing Finance, HDFC Bank, ICICI Prudential, Infosys, HCL Technologies, PNB Housing, IDFC Bank, ICICI Bank, ITC and Maruti Suzuki report second-quarter results

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