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Last Updated : Oct 13, 2019 07:47 AM IST | Source: Moneycontrol.com

Earnings, CPI among 10 key factors that will keep traders busy this week

As many as 96 companies will declare their September quarter corporate earnings this week

Sunil Shankar Matkar
 
 
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The market regained momentum with benchmark indices rising over a percent each in the week ended October 11, as bulls were back in power. The indices had lost 3 percent each in previous week.

Centre's effort to bring consumer demand back -- be it through dearness allowance or promise to bring credit flow normalcy during the festival season, along with hope of US-China trade deal -- outweighed increase in crude oil prices amid Middle East tensions, weak start to earnings season and asset quality concerns.

But the broader markets completely underperformed frontliners with the Nifty Midcap and Smallcap indices ending the week with moderate losses.

Close

In the coming week, the market will initially react to Infosys' earnings which were in line, and weak August industrial output data. But the rising hope for US-China deal amid US President Donald Trump comments after two-day trade talks meeting could lift sentiment, experts said, adding overall it could be a consolidative week with a positive bias and all eyes are on corporate earnings.

"While the street has built in the effect of slowdown in earnings numbers, but if actual earnings turn out to be worse, then markets could slip to lower levels and vice versa. Trade deal between US and China could also lift sentiments though it could also have negative implications in terms of higher crude and commodity prices," Sanjeev Zarbade, VP PCG Research, Kotak Securities told Moneycontrol.

Banking and financials, infrastructure and metals stocks led the market higher during the week.

FIIs outflow reduced significantly to Rs 493 crore last week against Rs 3,261 crore worth of selling in previous week. However, DIIs remained net buyers to the tune of Rs 1,660 crore during the week.

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

Earnings

The market will enter second week of September quarter corporate earnings season. As many as 96 companies will declare their results, including Hindustan Unilever (HUL), SBI Life, Wipro, ACC, Mindtree, Zee Entertainment, Reliance Industries (RIL), HDFC Bank, Ambuja Cements, ICICI Lombard, Shree Cements, etc.

Experts feel this September quarter earnings could largely lift the market sentiment and may bring FPIs back to the Indian market again.

"We certainly believe corporate number will largely guide mood of the market for the coming week. To begin with, TCS growth numbers and outlook have largely disappointed the street whereas IndusInd Bank's number brought mixed tides in sentiments. When checked on an overall basis, we see a mixed bag of numbers where revenue growth will be slower than the previous year," Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote told Moneycontrol.

"Since the market has well corrected in time and price, the same may not be taken negatively by the market. Hopefully this earning season will revive investors’ sentiments in the market and will bring back long forgotten bull spirit of FPIs," he said.

Hindustan Unilever

FMCG major Hindustan Unilever (HUL) is expected to report double digit growth in earnings as lower commodity prices and cost saving measures could lift operating performance while revenue growth may be in higher end of single digit amid some impact of slowdown in rural business. Numbers will be announced on October 14.

Motilal Oswal expects HUL's revenue to grow 7 percent YoY, with underlying domestic volume growth of 6 percent in Q2FY20 against 10 percent growth in Q2FY19 while Kotak sees 8 percent revenue growth in the domestic FMCG business led by 5.5 percent underlying volume growth and 2.5 percent price-led growth.

"We expect 270 bps YoY expansion in EBITDA margin aided by gross margin expansion (150 bps), operating efficiencies (20 bps) and adoption of Ind-AS (100 bps). Net profit growth would be much higher owing to effective tax rate (ETR) cut and associated reversal of Q1FY20 taxes; we model 19 percent ETR for Q2FY20 translating into 25.2 percent ETR for first half of FY20," Kotak said.

Key issues to watch out for would be comments on consumer demand environment, pace of rural growth, competitive intensity especially in detergents, performance of Lever Ayush, WIMI growth.

Reliance Industries

Reliance Industries, the country's largest company by market capitalisation, will declare its September quarter earnings on October 18. Brokerage houses expect the company to report good set of earnings for the quarter with gross refining margin at $9.5 a barrel against $8.1 a barrel in Q1FY20.

Higher gross refining margin, petchem volumes, telecom and retail businesses are expected to contribute to earnings.

"Consolidated EBITDA will be boosted by higher contribution from Jio amid rising subscriber base and steady ARPUs, and retail segment amid sustained, albeit a tad slower, growth in revenues," Kotak said.

US-China Trade Deal

The market is expected to react positively to the partial trade deal between world's largest economies US and China, but will remain watchful for further developments over final deal.

While speaking to reporters after talks with Chinese Vice Premier Liu He,  US President Donald Trump said that US and China had come to a substantial phase-1 trade deal, reaching agreement on intellectual property, financial services and big agricultural purchases.

The preliminary, partial deal is the biggest step toward resolving a 15-month tariff war.

"The year being an election year in the US where GDP run rate has fallen from 3.1 percent to 2 percent suggests that President of the United States (POTUS) will have to crack the code of US-Sino trade war. Failing which, we believe that the US may enter into severe recession, implying major fall in US bourses which would reduce President Trump's chances of reelection. Hopefully, POTUS will act wisely to resolve these conflicts immediately in the interest of the global economy," Jimeet Modi said.

Macro Data

The market will closely watch the data of September Consumer Price Index (CPI) inflation due on October 14 as it helps the Reserve Bank of India (RBI) decide interest rate decision in forthcoming policy meetings.

CPI inflation rate in August grew 3.21 percent, remaining within Reserve Bank of India's (RBI) target level of 4 percent, against 3.15 percent in July. September Wholesale Price Index (WPI) inflation will also be announced on same day.

Balance of trade data for September will be declared on October 15 while the October monetary policy meeting minutes and foreign exchange reserves data for week ended October 11 will be released on October 18.

IPO Listing

The much awaited listing of Indian Railway Catering and Tourism Corporation (IRCTC) will take place on October 14 after its initial public offering (IPO) received the highest ever subscription (112 times) among PSUs.

Experts who spoke to Moneycontrol said IRCTC could list with more than 50 percent premium over its issue price of Rs 320 per share and could double in next one year, given its monopoly in the industry, high entry barrier business, diversified service offerings, favourable industry dynamics with strong levers in place to drive sustainable, profitable growth, high ROCE and healthy dividend yield.

Vishwaraj Sugar Industries will also debut in coming week, on October 15 after receiving subscription of 1.12 times. The company raised Rs 60 crore through public issue.

Technical View

The Nifty50 closed a tad above 11,300 levels and witnessed Spinning Top kind of indecisive formation on daily charts Friday, but formed bullish candle on weekly scale after a large bearish candle formation in previous week.

Experts expect the momentum to continue amid a volatile trade in the coming week, but if it fails then the index may correct up to 11,100-11,150 levels.

"The short term trend of Nifty is volatile with positive bias. The upper area of 11,400 is currently acting as a stiff resistance for the market," Nagaraj Shetti, Technical Research Analyst at HDFC Securities said.

"We are unlikely to see any sharp upmove for the next week, as there is a higher possibility of sell on rise opportunity. Inability to sustain above 11,400-11,450 levels could eventually drag Nifty down towards 11,100 again in the next few weeks," he added.

F&O Cues

Option data suggests the Nifty could trade in a wider range of 11,000 to 11,600 levels in coming days.

Maximum Put open interest is at 11,000 followed by 11,200 strike while maximum Call open interest is at 12,000 followed by 11,500 strike. Marginal Put writing is at 11,000 then 11,300 and 11,200 strikes while Call unwinding is seen at all the immediate strike.

"The premium of Nifty futures at the start of the October series was 70 points, which has declined to 20 points. This should provide some upward momentum as historically it is seen that the Nifty finds it difficult to move at higher premiums," Amit Gupta of ICICI direct said.

"The highest Put base is placed at the 11,000 strike, which is the same structure that was seen before the corporate tax cut announcement. We believe the Nifty would try to form a higher base near 11,200 in coming weeks," he added.

Corporate Action

Here are corporate actions to take place in the coming week:

Global Cues

Apart from rising hope for US-China trade deal after positive Trump comments, here are other global data points to watch out for in coming week:

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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 Oct 13, 2019 07:47 am
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