The market scaled further with benchmark indices hitting a fresh record highs during the week ended January 17, amid optimism ahead of Budget 2020 scheduled to be presented on February 1, and Q3 earnings season which has been mixed so far.
The BSE Sensex and Nifty50 gained 0.8 percent each, while the strong appetite in the broader space continued ahead of the Budget and amid likely re-rate in valuation as the Nifty Midcap and Smallcap indices rallied 4 percent each during the week.
However, banks were only losers among sectoral indices due to higher slippages by IndusInd Bank and rejection of review petition of telecom companies by the Supreme Court of India (SC).
First, on January 20 (Monday) the market will react to earnings of big companies -- Reliance Industries (RIL), TCS, HCL Technologies and HDFC Bank -- which all combined have a market capitalisation of nearly Rs 27 lakh crore i.e. 30 percent of total Nifty50 market cap.
Overall for the week, experts expect the positive momentum to continue along with consolidation as markets traded at premium valuations, and stocks and sector-specific activity to continue amid Q3 earnings season and ahead of the Budget which both will dictate market direction further.
"Markets will witness higher volatility but in terms of price, they might just move higher before budget," Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote told Moneycontrol.
According to Santosh Meena, Senior Analyst at TradingBells, midcap and smallcap spaces are likely to continue their outperformance where a sector-specific move can be seen on pre-Budget news flows.
"Rural and infra related themes are likely to do well ahead of budget as generally, expectations remain high for rural and infra sectors from the budget," he said.
Here are 10 key factors that will keep traders busy this week:
We are in the third week (January 20-25) of October-December quarter earnings season and nearly 200 companies will announce their quarterly earnings.
L&T, Kotak Mahindra Bank, Axis Bank, ICICI Bank, Canara Bank, Bank of Baroda, ICICI Prudential Life, SBI Life Insurance, Asian Paints, HDFC AMC, HDFC Life, RBL Bank, PVR, Biocon, Federal Bank, Havells, Zee Entertainment, ICICI Securities, AU Small Finance Bank, Ujjivan Small Finance Bank, Reliance Nippon Life, UltraTech Cement, JSW Steel etc among others will release their quarterly financial report card in the week ahead.
"Nifty50 index earnings are expected to grow by more than 20 percent on a YoY basis due to low base of last year, cut in corporate tax and growth in banking sector on account of fall in provision & NPAs. Overall expectation is that Q3 is likely to provide a strong push to earnings growth trajectory for FY20 and 21," Vinod Nair, Head of Research at Geojit Financial Services said.
The country's largest private sector lender ICICI Bank on January 25 is expected to register a solid triple digit growth profit during October-December period on account of Essar Steel recovery. Also there could be substantial decline in provisions during the quarter.
Net interest income and pre-provision operating profit may grow around 30 percent each year-on-year, with loan growth of around 13 percent YoY. Asset quality is expected to be stable for the quarter.
"We expect reduction in gross NPLs on the back of write-offs and slippages at around 1.5 percent (of total loan book) levels. Credit costs to decline sharply QoQ on account of resolutions in a few large cases like Essar Steel, Ruchi Soya, JP Power. Below investment grade portfolio to remain stable," said Kotak Institutional Equities which expects profit growth of 212.6 percent YoY and 33 percent in NII.
Edelweiss also said slippages would stabilise and would largely flow from existing stress pool. "That said, we need to watch for downgrades to BBB and below list (system has seen higher downgrades)."
Axis Bank numbers on January 22 will also be closely watched in the coming week as the private sector lender is expected to report 50-60 percent YoY growth in profit on account of lower provisions and the sequentially it is likely to turn profitable (against loss of Rs 112 crore in Q2FY20).
Net interest income is seen rising in the range of 13-15 percent with loan growth in similar range and stable NIM YoY. Asset quality during the quarter may improve with decline in slippages.
"Core operating performance will continue to be strong. Loan growth will be better than industry average given the continued momentum in retail growth and opportunistic pick up in corporate. NIMs will benefit from earlier capital rising, helping sustain core momentum," said Edelweiss.
Kotak expects slippages of around Rs 4,000 crore (3 percent of loans) mostly from "below investment grade book". "We expect an unchanged gross NPL and below investment grade loan portfolio."
ICICI Prudential Life, SBI Life, HDFC Life
Life insurance companies will also be tracked by the street as they will release their quarterly earnings report card (ICICI Prudential - January 21, SBI Life - January 22 and HDFC Life - January 23).
Brokerages largely expect strong double digit growth in value of new business (VNB) with solid VNB margin expansion YoY in quarter ended December 2019.
"VNB growth will likely remain highest for HDFC Life at 32 percent YoY (though lower than 57 percent YoY in 1HFY20 due to lower annual premium equivalent (APE) growth and marginally lower margins). ICICI Prudential Life will likely deliver 27 percent YoY growth in VNB (up from 20 percent YoY in 1HFY20) due to higher APE growth even as sequential decline in the share of protection business will pull down margins," said Kotak.
The brokerage also expects SBI Life to deliver 23 percent YoY growth in VNB against 33 percent YoY in first half of FY20. "Key reason for slowdown is 17 percent YoY APE growth in Q3 as compared to 26 percent YoY in 1HFY20."
Kotak expects 300 bps YoY expansion in VNB margin for HDFC Life, 130 bps for ICICI Prudential and 100 bps for SBI Life.
Larsen & Toubro
Infrastructure major Larsen & Toubro is expected to report high single digit growth in revenue, but adjusted revenue for third quarter (October-December 2019) could be in double digit on January 22. Actually numbers are not comparable YoY as company sold electrical and automation business and merged Mindtree.
The revenue growth is likely to be supported by strong execution in infrastructure, hydrocarbon, services and defence segments, but power business continued to weakness for another quarter in Q3.
Profit may grow in double digits (around 20 percent) due to lower tax cost YoY, but margin may remain under pressure on sequential as well as YoY.
Most brokerages expect the company to revise downwards its full year order inflow guidance due to slow economic activity.
"L&T’s order inflow guidance could be cut given that merely around Rs 5,000 crore worth of orders were announced in Q3 (H2FY20 order inflow ask of Rs 85,000 crore to meet management guidance)," Edelweiss said.
Key things to watch out for would be execution trend and outlook on some big ticket orders, commentary on private capex cycle and status of the coastal road project in Mumbai, among others.
AGR payment deadline
After the rejection of review petition of the telecom companies by the Supreme Court, it is clear that they have to pay adjusted gross revenue (AGR) dues of more than Rs 1.47 lakh crore by the deadline January 23.
So it is keenly watched by the street because the amount they are expected to pay is huge. For Bharti Airtel the AGR dues are more than Rs 34,000 crore, which is manageable due to tariff hikes, but it would be difficult for Vodafone Idea which owes AGR dues of Rs 53,000 crore to government, brokerages feel.
Bharti Airtel already raised around Rs 21,000 crore via QIP and FCCB, and the rest Rs 13,000 crore could be funded by bank loans, Motilal Oswal said, adding Vodafone Idea has no source of cash to pay the liabilities and was entirely dependent on payment relief.
Recently a media report indicated that Vodafone Idea may make some part payment to stay active and approach the government for taking more time to pay the rest of the amount.
Hence, both stocks would be closely watched by the street in the coming week.
The Nifty50 closed flat with a negative bias on January 17, forming bullish candle on daily charts as closing was higher than opening. For the week, the index gained 0.8 percent and saw a bullish candle formation on weekly scale.
Experts feel the momentum is expected to remain strong and 12,300, which strongly defended in the week gone by, could be crucial level to watch out for in the coming week.
"The index made higher top and higher bottom formation on hourly scale which hints of upside momentum to continue towards 12,450 mark, provided it manages to hold above 12,300 mark. On the contrary, if index is unable to sustain above 12,300 then a downside move towards 12,200 cannot be ruled out," Nilesh Ramesh Jain, Derivative analyst- Equity Research at Anand Rathi Shares and Stock Brokers said.
Santosh Meena of TradingBells also said the market was in bullish momentum where 12,350-12,400 was an immediate and important supply zone but the market was not showing any major weakness.
On the options front, maximum Put open interest was seen at 12,000 followed by 12,200 strike, while maximum Call open interest was at 12,500 followed by 12,400 strike. Marginal Call unwinding was seen at immediate strike while some Put writing was seen at 12,300 strike.
Considering the current futures & options data, the Nifty is expected to trade in wider trading range of 12,000-12,500 levels with 12,200 to be a strong support in near term, experts feel.
"The Put base has become higher at 12,200 while it would remain a support on any intermediate decline," Amit Gupta of ICICIDirect said.
Call positions have been the highest at 12,500 since the start of the series with additions seen even at the 12,600 strike, which both would be the Nifty target levels, he added.
Generally the volatility is expected to be high whenever we move closer to key events like Budget. Hence, India VIX already inched up from 12.5 to 14 levels in the last session.
"The hurdle for volatility is placed at 16% from where it should again start reverting lower, thus keeping the overall bias of the equity index positive," said Amit Gupta.
Here are corporate actions taking place in the coming week:
Bank of Japan and European Central Bank's policy meetings are among others key global data points to watch out for in the coming week:
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