The NSE Nifty came within the kissing distance of reaching the historic 20,000 mark last week, but a shocking revenue guidance cut from Infosys and lacklustre results from some mid-sized IT firms triggered a sharp sell-off on Friday.
However, bulls might be preparing to resume their upward trajectory after a bunch of private sector banks surpassed Street estimates to post stellar numbers for Q1 FY24, aided by robust disbursements and improving asset quality.
ICICI Bank on July 22 reported a net profit of Rs 9,648 crore for the first quarter of the current financial year, up 40 percent from the year-ago period and way ahead of market expectations of Rs 8,982 crore.
Net interest income (NII) of the lender increased by 38 percent year-on-year (YoY) to Rs 18,227 crore in the April-June FY24 quarter from Rs 13,210 crore in the corresponding quarter last year.
The net interest margin (NIM) of the bank was at 4.78 percent in the quarter compared to 4.01 percent in the same quarter last year.
The bank's asset quality improved as the gross non-performing assets (GNPAs) declined to 2.76 percent from 3.4 percent in the year-ago period. The net non-performing assets (NNPA) fell to 0.48 percent from 0.70 percent in the year-ago quarter.
Sandeep Batra, ED, ICICI Bank told CNBC-TV18 that the Indian economy continues to remain resilient.
"We continue to operate within our risk-calibrated framework. Our core operating profit grew by 35.2 percent YoY and profit after tax grew by 39.7 percent YoY," he said. "Our home loan portfolio grew by 15.6 percent in Q1, mortgage portfolio stands at Rs 3.55 lakh crore."
On similar lines, Kotak Mahindra Bank clocked a 50.62 percent YoY rise in its consolidated profit at Rs 4,150.19 crore in Q1 on the back of a sharp increase in net interest income and improved asset quality.
On a standalone basis, net profit rose 66.7 percent on-year to Rs 3,452.30 crore, beating analysts' expectations of a 53 percent growth at Rs 3,182 crore, the bank said in a release.
On the asset quality front, the lender saw an improvement in June, with gross non-performing assets (NPAs) declining to 1.75 percent from 2.27 percent in the year-ago period.
Net interest income (NII), the difference between the interest income earned from lending activities and the interest paid to depositors, increased to Rs 6,234 crore, up 33 percent on-year.
The net interest margin (NIM) was 5.57 percent for Q1FY24.
RBL Bank beat Street estimates with a 43 percent surge in Q1 net profit at Rs 288 crore, while Yes Bank’s net profit rose 10.26 percent YoY to Rs 342.5 crore, with a robust improvement in asset quality as its gross non-performing assets (GNPAs) stood at 2 percent compared with 13.4 percent in the corresponding quarter of the previous fiscal.
“As the Q1FY24 earning season is going on, IT companies posted sluggish performance. Meanwhile, banks are expected to drive Q1FY24 earnings growth on the basis of stable net interest margins (NIM), better asset quality and strong long growth. We expect the markets will take further cues from ongoing Q1FY24 results, domestic and global macroeconomic data, global market trends, crude oil prices and FII/DII activities,” said Arvinder Singh Nanda, Senior Vice-President, of Master Capital Services Ltd.
Nifty seems poised to continue the upward trajectory toward the levels of 20,100 and 20,300. In the event of any correctional fall, approximately around the 19,550 mark, it may present an opportunity to initiate fresh long positions, he added.
Tech Pain
After six straight days of gains, headline indices tumbled in the last session of the week after IT major Infosys shocked the Street by slashing its revenue growth guidance for the current fiscal to 1-3.5 percent from 4-7 percent.
Infosys plummeted over 8 percent, emerging as the biggest drag on the benchmarks.
Mid-sized firms like Mphasis, Persistent Systems and Coforge too wilted under selling pressure after posting weak numbers, highlighting the stiff near-term challenges confronting the IT segment due to the recessionary headwinds in Europe and US – the bread-and-butter markets for domestic software services players.
Mixed Bag
Reliance Industries reported a 6 percent YoY drop in net profit and 4.7 percent fall in revenue for the quarter ended June 2023 owing to a muted performance in its oil-to-chemical business (O2C), even as the retail and telecom businesses continued their rapid growth.
Jio Platforms, which houses Reliance’s telecom and digital businesses, saw a 12.5 percent growth in profit and 11.3 percent in revenue.
The results were declared after market hours on July 21.
Some key results are scheduled to be announced in the coming week, including Tata Steel, Tech Mahindra, Bajaj Finance, Nestle, Tata Motors, L&T and Axis Bank.
Tata Steel is likely to report a loss for the period ending June 30, 2023 (Q1FY24) due to the double whammy of lower realisations and underperformance of its European operations. The company will announce its June quarter earnings on July 24.
According to a Bloomberg survey of 12 brokers, Tata Steel’s consolidated net sales are expected to come in at Rs 56,337.80 crore, down 10.75 percent YoY. Net loss is estimated at Rs 122.80 crore, according to 11 brokers.
The Tata Group-backed steelmaker's EBITDA may fall 37 percent QoQ and 70 percent YoY.
Nestle results will also be in focus after FMCG major Hindustan Unilever’s Q1 numbers missed estimates. Volume growth of just 3 percent was a bigger disappointment.
Hindustan Unilever Limited (HUL) on July 20 reported a standalone net profit of Rs 2,472 crore for the June quarter of FY24, registering a growth of 8 percent from Rs 2,289 crore in the same quarter of the previous financial year.
However, the company reported a 10 percent fall in profit sequentially from Rs 2,552 crore in the previous quarter.
The total revenue of the company is Rs 15,333 crore, rising 6.4 percent from Rs 14,016 crore in the year-ago quarter.
Global Macro
The US Federal Reserve is set to announce its monetary policy on July 26, with most analysts projecting a 25 basis points rate hike to take the benchmark overnight interest rate to the 5.25 -5.5 percent range.
While retail inflation in the US slowed to 3 percent in June from 4 percent in May, it is still above the Fed’s target of 2 percent.
At its previous policy meet, almost all members of FOMC agreed that more tightening will likely be needed this year.
FII flows will be another key factor to watch.
“FPI flows into India continue unabated in July, too. India is the largest recipient of FPI flows YTD among emerging markets. The selling in China continues. In July, till 21st, FPIs have invested Rs 43,804 crore in India. This figure includes investment through stock exchanges, primary markets and bulk deals.
“FPIs continue to invest in financials, automobiles, capital goods, realty and FMCG. FPI buying in these sectors has contributed hugely to the surge in prices of stocks in these sectors and the Sensex and Nifty scaling record highs.
“The concern, however, is the rising valuations. At high valuations, some negative triggers can lead to a sharp correction. This happened on Friday when the Sensex tanked by 887 points on negative news from Infosys and HUL,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
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