India Inc: Be selective! Going may get tough for India Inc in coming quarters


Markets experienced Friday blues and erased the long-standing gains made till lifetime highs of 18,600. Although the sell-off eased a bit as the week passed by, the nervousness among market participants only escalated towards the end. FPIs offloaded more than Rs 15,300 crore worth of Indian equities in the week signifying valuation concerns, turning markets upside down. The focus seems to be shifting from premium Indian equities to relatively cheaper markets.

In addition to this, the cautiousness was heightened by the unenthusiastic response towards India’s largest IPO to date and a resurgence of Covid concerns across Europe.

Investor sentiment turned tepid towards the fag end of the second-quarter results. The result season was mostly divided with companies showing strong signs of demand growth but at the same time, high raw material and input cost adding pressure on margins. Highly commoditised and cyclical businesses such as oil and gas, metals etc. saw bumper revenue and PAT growth although most of it was already captured in the price movement. Banks also delivered improvement in asset quality and collection efficiency while autos, chemicals, consumer durables, and FMGC witnessed stress on their margins, owing to inflationary pressure.

While investor expectations were more or less in line this time, further damage on the margin front is possible in the coming quarters. Companies have begun passing on the price hikes to the consumers to save their margins but the struggle is far from over. So, investors must be careful of such stocks and should assess wisely before jumping in.

Event of the week
For over a week, Brent crude prices have steeply declined by around 9% from highs of $85/bbl to a low of $77/bbl, at which point it took a U-turn towards $82/bbl. Any further upside post this steep one day’s move was collectively capped by major economies across the globe. They released millions of barrels of oil from their Strategic Petroleum Reserve in anticipation to quell the high oil prices. Such a bold move by the participating nations is expected to put pressure on OPEC and its allies to pump more oil supply to match the ever-increasing demand. The volatility in crude is of major concern as it fuels inflation and India, being a major net importer, is at risk. The strategy to tame prices seems sustainable in the short term but if OPEC+ fails to join in, the prices could rally even further.

Technical Outlook
Nifty50 index closed strongly negative after volatile trading throughout the week. The index posted the biggest weekly decline in the last 10 months and is now trading below the crucial support level as well as the rising trend line, which had been supportive throughout the secular up move. This can be interpreted as the price action confirmation for a pause in the ongoing major uptrend. We suggest traders maintain a bearish outlook on the market as there is downside potential after the recent bull run. A short-covering bounce cannot be ruled out but with further time correction. On the downside, the next major support is now placed at 16,500.


Expectation for the week
Post Q2 result season, Dalal Street will look towards macros for hints to move the needle in broader markets. Inflation being a key factor will be at the centre of all news in the next two weeks since the RBI MPC meet is scheduled in December. Further, a slew of listing flops in IPOs in the coming weeks could also indicate the slow drying up of liquidity from the markets in general. November monthly auto sales number can be a trigger to drive some movement in the coming week.

Nifty50 closed the week at 17026.45 down 4.16%.

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