Nifty can fall to 21,400, investors should sit out earnings season, say analysts

HDFC Bank saw a 8.2% decline, marking its sharpest fall since March 30, 2020.

The Sensex and the Nifty plunged over 2 percent each on January 17 as a fall in banking stocks, triggered by disappointing Q3 show by heavyweight HDFC Bank, led to panic on the Street, undoing the gains brought in by IT firms’ December quarter performance.

Analysts expect the selloff to intensify as corporate earnings season moves on and suggest investors to “wait” for the results to get over before putting in fresh money.

"As the Nifty re-enters 21,700-800 support zones, we see bulls losing control. With Wednesday's selloff being led by banking names, the pressure could further send the Nifty down to 21,400-200 levels," said Ajit Mishra, senior vice president-technical research, Religare Broking.

On January 17, the Sensex closed 1,628 points lower, or 2.2 percent, at 71,500, while the Nifty sank 453 points, or 2 percent, to 21,578.

Private sector lenders like HDFC Bank, Kotak Mahindra Bank, Axis Bank, and ICICI Bank were top Sensex laggards.

Sectorally, the Bank Nifty index was the worst hit, down 4.2 percent. Mishra added that 45,700 would act as a critical support for the index. If it fails to hold it, the banking index fall over 1,000 points.

ALSO READ: HDFC Bank sheds 6% to top Nifty losers as flat margins, lower EPS growth upset investors

Should you buy, sell, or hold HDFC Bank?

India's largest private sector lender HDFC Bank was the reason for the market rout after it reported flat margins on a sequential basis in Q3FY24 due to higher cost of funds.

Though the management indicated that margins might be at the lower end of spectrum, analysts shared mixed views.

"We do not expect HDFC Bank margins to be at 4.3 percent anytime soon," Santanu Chakrabarti, Head-BFSI Research, BNP Paribas told CNBC-TV18.

Analysts at HSBC reduced their target price for HDFC Bank to Rs 1,950 from Rs 2,000 a share, saying it has few levers in place to expand margins.

However, Gaurang Shah, Senior Vice President, Geojit Financial Services, reiterated his bullish stance for the stock, with a target price of Rs 2,000. Judging the stock on one quarter performance was unfair to the lender's 16-17 years of good history, he said.

Apart from HDFC Bank, he also recommended that investors buy IndusInd Bank for the long term.

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Are IT stocks a good bet in this market?

IT stocks, which have been taking a knock, were a bright spot on January 17. But AK Prabhakar, Head of Research at IDBI Capital, advised investors to wait for a fundamental trigger.

"Investors are happy with IT Q3 results as it was above Street estimates. But IT pack still delivered a flattish December quarter results. So, for investors looking to invest with a one-year time horizon, we suggest to wait and watch," he added.

Shah said investors could buy tier-2 IT stocks due to anticipated better performance. "We are bullish on Cyient, KPIT Tech and LTIMindtree," he added.

Top four IT companies - TCS, HCL Tech, Wipro, and Infosys -- have topped Street expectations for Q3FY24. Though analysts expected the pack to deliver a disappointing quarter on seasonaility and weak macros, they surprised by delivering flattish to mid-single digits growth in revenue.

Strategists expect volatility to prevail.  Chokkalingam G, the founder of Equinomics Research, suggests remaining put and wait until Q3 results are over to bring in fresh money.

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