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Last Updated : Jul 14, 2019 07:43 AM IST | Source: Moneycontrol.com

As earnings season kicks off, here are 10 key factors that will keep traders busy this week

On July 15, the market will first react to Infosys earnings which outperformed TCS' results in Q1, June CPI inflation and May factory data

Sunil Shankar Matkar
 
 
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The negatives in the Union Budget 2019 dented market sentiment in the week ended July 12, but there is rising hope for rate cut after Federal Reserve Chairman Jerome Powell's testimony.

The BSE Sensex plunged 777.16 points or 1.97 percent at 38,736.23 and the Nifty50 fell 258.65 points or 2.19 percent at 11,552.50 for the week. The broader markets also fell in line with frontliners as the Nifty Midcap and Smallcap indices declined 2 percent each.

On July 15, the market will first react to Infosys earnings which outperformed TCS' results in Q1, June CPI inflation and May factory data.

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But overall as the earnings season kicked off on a mildly positive note, there could be more stock specific action in the absence of major macro data. The market could be range-bound unless any results surprise in the coming week, experts said, adding geopolitical tensions in Gulf. The hope of rate cut by Federal Reserve in the upcoming policy meeting in July will be key to watch out for on the global front.

"We expect the markets to remain choppy in the near term in the backdrop of weak domestic sentiments given the on-going economic slowdown. The monsoon has shown considerable improvement over the past 1-2 weeks which is positive for the Indian economy. However, the progress of monsoon would be actively tracked by traders and investors," Ajit Mishra Vice President-Research at Religare Broking told Moneycontrol.

He also said that earnings announcement by companies is likely to lead to stock specific volatility. On the global front, on-going geopolitical tensions between US-Iran could have a bearing on Indian markets as crude prices have inched higher and is likely to keep the market participants on edge, he added.

Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote who advised that investors must stand on the sidelines with caution and not get into risky stocks which have high debt or high promoter pledge. "Fed Chief Jerome Powell is implying a rate cut at the end of this month over concerns of softer business investments due to trade wars and weak inflation, he added.

Here are 10 key things that will keep traders busy in coming week:

Earnings

As we are entering in the second week of June quarter earnings season, about 90 companies will declare their quarter results including Reliance Industries, HDFC Bank, Yes Bank, Wipro, Mindtree, HDFC AMC, RBL Bank, ACC, Colgate Palmolive, Dabur India, InterGlobe Aviation, ICICI Lombard General Insurance and Bandhan Bank.

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Most brokerages expect June quarter earnings season to be muted (barring corporate banks) or similar to March quarter 2019 due to slowdown and liquidity concerns across major sectors.

"Q1FY20 earnings are likely to be muted as demand across sectors was weak during the quarter primarily due to liquidity issues," Equirus said.

Motilal Oswal, which expects 7.5 percent profit growth for Nifty in FY20 excluding corporate banks, also said that risks to earnings remain tilted toward the downside, given the still weak underlying demand scenario and lack of private capex recovery.

Reliance Industries

Reliance Industries, the largest listed company in India by market capitalisation, will declare its June quarter earnings on July 19. Refining & petrochemical volumes, and Jio & retail businesses are expected to be strong and will drive revenue growth on sequential basis for the company.

Gross refining margin is expected to be higher at $8.5 a barrel in Q1FY20 against $8.2 a barrel in Q4FY19, which implies a premium of $5 per barrel over Singapore GRM, said Motilal Oswal which expects refining throughput to grow 9 percent QoQ and petchem volume to rise 11 percent QoQ.

"With core business bearing the periodic suffering, positive developments in the telecom and retail segments should drive growth further for the company," the brokerage said.

Singapore GRM for the quarter stood at $3.5 par barrel, down around 42 percent YoY and up around 8 percent QoQ, due to an improvement in gasoline cracks.

Reliance management is confident of 7 percent volume growth in both polymer and polyester business which will benefit Reliance in Indian markets, hence petrochemicals business is expected to remain buoyant in Q1 FY20, Narnolia said. He also added that Jio has successfully integrated Hathway and Den network and is now rolling out JioGiga Fiber in 1,100 cities in India targeting 5 crore JioGiga Homes in the first phase.

Key issues to watch out for would be GRM, petrochemical margin, telecom subscribers, future capex, and interest cost & depreciation.

HDFC Bank

HDFC Bank, which has the highest weightage in Nifty50, is expected to report more than 20 percent growth in profit, net interest income and pre-provision operating profit on July 20. However, there could be slow loan growth to around 17 percent due to slow retail book but corporate advances may provide strong support on benefits from NBFC slowdown.

"Advances run rate is expected to slow down at around 17 percent YoY. The retail segment, which has been the growth engine in recent quarters, is seen remaining behind led by a cautious approach in unsecured lending products and a slowdown in auto sales. Corporate segment growth may remain healthy as the bank continues to remain a beneficiary of NBFC slowdown, as seen last quarter," ICICI Direct said, adding that asset quality is expected to remain steady.

Kotak said fee income growth from MFs is expected to be slower YoY due to changes in regulations, while asset and payment fees will grow at a slower rate. "Growth in credit costs, especially from rural loans, would be a key monitorable," it said.

Yes Bank

Another private sector lender Yes Bank is expected to see a sharp decline in profitability YoY on muted loan growth and weak asset quality. Net interest income growth could be in a single digit with pressure on margin.

"We expect loan growth to decelerate further to around 8 percent YoY. Revenue pressure will remain high due to weak fee income growth (sharp decline) and NIM pressure (higher funding costs). Asset quality ratios (with gross non-performing assets around 3.9 percent) could further deteriorate (lumpy corporate exposure)," Kotak said.

According to ICICI Direct, exposure to tainted names & higher exposure towards real estate developer coupled with other stressed pool of around Rs 10,000 crore is expected to keep provisions higher at around Rs 1,208 crore (credit cost of 48 bps) compared to the earlier run rate that is expected to keep the pressure on earnings. Hence, PAT is expected to witness de-growth of 85 percent YoY to Rs 188 crore.

Commentary from the new MD & CEO would be crucial as there have been a few more 'stress accounts', where the bank has had exposure. The progress of "below investment grade", deposit profile and capital consumption would be a key monitorable, Kotak said.

Crude

International benchmark Brent crude oil futures rallied to highest levels in six weeks gaining around 5 percent in the week ended July 12 to around $66.72 a barrel amid geopolitical tensions between US-Iran, and as tropical storm Barry hit US Gulf of Mexico crude output.

"OPEC+ has extended its present supply agreement till March 2020 to counter the demand growth slowdown. Also, decline in US inventories has also supported oil prices. However, global growth remains a worry and is likely to keep upsides limited," Amit Gupta of ICICI Direct said.

International Energy Agency said on Friday surging US oil output will outpace sluggish global demand and lead to a large stocks build around the world in the next nine months.

The world energy watchdog's report came a day after the Organization of the Petroleum Exporting Countries predicted a crude glut next year despite an OPEC-led pact to restrain supplies. (Source: Reuters)

"The biggest being oil politics and unfolding of events on the Gulf could have a negative bearing on Indian bourses if the situation worsens," Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote said.

Macro Data

Wholesale Price Index inflation and balance of trade data for June will be released on July 15.

Wholesale price-based inflation dropped to 22-month low at 2.45 percent in May 2019 against 3.07 percent in the previous month and 4.78 percent during same month last year, helped by falling prices of food articles, fuel and power items.

Deposit & bank loan growth for the fortnight ended July 5, and foreign exchange reserves for week ended July 12 will be announced on Friday.

India's foreign exchange reserves rose to a fresh record high of $429.91 billion after a heavy increase in the value of gold and currency assets during the week ended July 5., rising by $2.23 billion.

Technical Outlook

After Monday's sharp fall, the Nifty50 failed to surpass its key hurdle area of 11,650 level and drifted lower sharply towards 11,550 levels. It has seen a bounce back of around 200 points from its weekly lows in last four sessions but resistances are also intact near to 11,650 zone.

The index lost 2 percent and formed a bearish candle which resembles a Bearish Belt Hold kind of pattern on weekly scale.

The pattern indicated that supply pressure is intact at bounce back move but at the same time index is also respecting to its rising support trend line by connecting major swing lows of 10,585, 11,108 and 11,461 levels, experts said, adding the pullback could be possible only if it decisively closes above 11,650 level.

"The chart pattern suggests that if Nifty crosses and sustains above 11,650 level it would witness buying which would lead the index towards 11,770-11,860 levels. However if index breaks below 11,500 level it would witness selling which would take the index towards 11,400-11,280," Rajesh Palviya, DGM - Research ( Head Technical & Derivatives Research) at Axis Securities told Moneycontrol.

He said the Nifty is trading below 20 and 50-day SMA's which are important short term moving averages, indicating negative bias in the short term. For the week, he expects Nifty to trade in the range of 11,700-11,280 with a negative bias.

F&O Cues

Maximum Put open interest (OI) is at 11,300, which will act as crucial support for July series, followed by 11,500 & 11,000 strike while maximum Call OI is at 12000, which will act as crucial resistance for July series, followed by 11,700 & 11,800 strikes.

We have seen Put writing at 11,400 strike while Call writing is at 11,700 followed by 11,750 strike.

Option data suggests a trading range in between 11,400 to 11,700 zones, experts feel.

"The Nifty is likely to consolidate in the coming week. The Nifty futures premium has converted into a discount declining from 10 to (-6) during the week, which means liquidation of long positions as the Nifty futures OI has declined by 1.2 million shares since the start of the current series. It may take some time for the index to start getting the momentum back," Amit Gupta of ICICI Direct said.

India VIX fell by 8.12 percent from 13.06 to 12 levels in the last week. Volatility remained lower even after the profit booking declines post Budget and now it is hovering below 12 zones which is the lowest daily closing in last 15 months since April 24, 2018.

"Lower volatility suggests that index could be stuck in a trading range with restricted upside as participants are not expecting much action till any other trigger doesn't affect Indian market," Chandan Taparia of Motilal Oswal Financial Services said.

Corporate Action

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Brigade Enterprises will have a board meeting on July 15, Dhanlaxmi Bank on July 16, HUDCO on July 18 and Axis Bank on July 20 to consider fund raising plan.

Global Cues

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Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

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First Published on Jul 14, 2019 07:43 am
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