Quarterly earnings, global economic data to drive markets this week

This week, investors focus would shift back to the quarterly results which would start with TCS, Infosys and HDFC Bank reporting their numbers. Apart from results, a lot of economic data would be announced and keenly tracked by global investors. US, China and India would release their retail inflation data which is crucial in the current rising interest rate environment. UK would announce its Feb GDP while last FOMC meeting minutes would provide insights into US Fed’s thought process.

Overall, the rate pause and encouraging domestic economic data continues to provide positive undertone to the market. However, given the backdrop of global uncertainties and fear of US recession, we might see range bound movement in Nifty in the near term.

Last week, domestic markets recorded a second consecutive week of gains, aided by a surprise rate pause by the RBI, strong economic data and good pre-quarterly business updates from banks & NBFCs. It was the second truncated week with just three working days and even this week would have just four trading days due to holiday on Friday. FIIs turned into buyers over the last five days to the tune of Rs 4263 crore and reduced their F&O short positions from 92% to 83%, which provided strength to the market. Broader market too gained with Nifty Midcap 100/Nifty Smallcap 100 up 1.1%/2.3%. Volatility index, India VIX fell further to 11.8, giving comfort to bulls.

In stark contrast to the market consensus, the RBI chose to keep the policy interests rates unchanged last week with repo rate at 6.5%, which cheered the market. This is however surprising considering that CPI inflation had surprised on the upside in the last two months and recent production cuts by OPEC+ nations would lead to higher crude prices. Though market is not very clear with regards to further RBI action, in the near term, interest sensitive sectors like realty, banks, NBFCs and auto are likely to remain in focus and may see trend reversal.

Even macroeconomic data on the domestic front have been robust which provided strength to the market. Manufacturing PMI touched 3-month high at 56.4 in Mar’23. GST collections remained strong at Rs.1.61 lakh crore in March. Additionally, net direct tax collections have exceeded Union Budget estimates by 17 per cent, further confirming robust economic growth.

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The growth in Q4 FY23 is expected to be healthy and would be mainly led by financials. Aggregate earnings is expected to be lopsided with five companies (SBI, ICICI Bank, ONGC, Tata Motors, and BPCL) likely to contribute 82% of the incremental YoY accretion in earnings. We expect Nifty sales/EBITDA/EPS to grow 9%/16%/14% YoY in 4Q FY23. Excluding global commodities (metals and O&G), Nifty should post 23% YoY earnings growth in 4Q FY23. Management commentaries and guidance would be keenly eyed amidst global uncertainties, which would provide many stock specific actions and overall direction to the market.

While the domestic factors provide positivity to the overall sentiments, global worries would keep investors cautious. The US job openings data fell below 10million for February, its lowest levels in almost 2 years. Manufacturing activity too weakened near to its three year low as new orders plunged and it is expected to decline further due to tighter credit conditions. Concerns with regards to rising oil prices have further added to the gloomy sentiments. OPEC+ countries in its surprise move reduced the crude oil production by another 1 million barrels per day beginning in May, which pushed Brent crude oil prices to ~$90. Domestic upstream oil marketing companies will benefit from this uptrend.

(The writer heads Retail Research at Motilal Oswal Financial Services Limited)