Market to remain sluggish unless inflation eases: Experts

Market has witnessed tremendous pressure due to disappointing fourth quarter numbers posted by the State Bank of India (SBI). SBI’s Q4 net profit tumbled nearly 99% year-on-year to Rs 21 crore on higher provisioning against non-performing assets and gratuity. Moreover, trailing impact of the April inflation data has also hurt market sentiments adversely. Experts feel that inflation is creating a big drag on the market and the market is unlikely to take a high jump unless inflationary pressure melts.

SBI Q4 PAT dips on higher provisions

“The market is reacting to the inflationary pressure that has been strongly building up in the economy and until we see that easing off, the long term optimism in the market will not come back,” said Rashesh Shah, chairman and CEO of Edelweiss Capital.

Shah, however, added that India’s potential to grind out a 7- 8% GDP growth and its household savings, which are likely to be about 30%, will bring back optimism in the market. “So, every time we see a market falling, there is a lot of investment buying that is always there in the wings from Indian institutional investors and global investors,” he said.

According to Anil Manghnani, Modern Shares & Stock Brokers, the banking sector looks quite dismal due to SBI’s poor fourth quarter result. “5350 on Nifty remains a major technical support but if that breaks, then you are opening up some serious downside,” said Manghnani.

BSE Sensex slipped by 1.10 % to close at 18137, and the NSE Nifty tumbled by 1.07% and ended at 5438.95. The SBI stock dipped by 7.35% and closed at Rs 2,425.

Manghnani further said that technically there is a lot of bad news on the charts for SBI as the stock has broken down badly. He also spoke about the ONGC stock, which is weak at present.

However, Shah feels that Indian banks are slightly more geared towards investment demand than towards consumption demand. Once the investment demand, which is curtailed at the moment, starts picking up, the credit ratio for banks will start improving.

Mehraboon Irani, Principal and Head of Private Client Group Business at Nirmal Bang Securities, reacting on the SBI numbers and its declining stock, said that the investors should put the SBI stock on hold as of now.

Talking about energy stocks, he said that this is not a good time to invest in ONGC and Suzlon as both stocks are weak as of now.

"If you look at the way the market has behaved, nearly 10% have been shaved off and yet we are refusing to accept the fact that we have fallen. This has happened mainly due to dismal earning results posted by major corporates. Corporate profit margins are under pressure and there is a possibility that Indian markets will not get a PE of more than 15-16% for the entire year," concluded Irani.

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