Analysts are of the view that largecap IT stocks could surprise the market in terms of earnings growth given how well their global peers have fared. That could help the benchmark indices given the sector has a weightage of more than 15 per cent in Nifty50 and Sensex.
At an aggregate level, expectations are firm from India Inc despite the quarter being marred by the devastating second wave of Covid-19 infections in the country. Most parts of the country were under some form of restriction in April and May, which have started to recede in June.
“Expectations are still quite high but not yet seeing the possibility of an earnings downgrade. On the other hand, further upgrades may be limited. Rather than actual earnings, I will watch out for commentary to assess the demand scenario,” said Amit Kumar Gupta, head of PMS at Adroit Finance Services.
Stocks are entering the earnings season perched near their record highs despite recent signs that foreign portfolio investors are looking to book profit. FPIs net bought domestic stocks worth Rs. 195.5 crore this week, which was largely on account of Rs. 3,305.9 crore worth of buying from foreign exchange-traded funds on Wednesday due to quarter-end portfolio adjustments.
Much of the selling from foreign investors was concentrated in cyclical trades like bank, metal and energy sector stocks. The Nifty Metal, Nifty Bank and Nifty Energy indices each fell over 1 per cent. By comparison, the Nifty50 index ended 0.3 per cent higher.
Defensive stocks came to the fore during the week with the Nifty Pharma index emerging the biggest sectoral winner on NSE. The index ended 3.3 per cent higher, followed by Nifty FMCG index’s 0.6 per cent rise.
While a strong earnings season will be crucial for the bulls to break past the barrier of the 16,000 points on the Nifty50 index, analysts suggest that traders could look at buying any dips towards the 15,600 level. “A simple strategy for investors will be to continue to let their longs in strong players ride while those seeking new positions can enter on pullbacks,” said Niral Shah, head of research at Samco Securities.
In the broader market, money managers are expressing concerns over the possibility of overheating. The Nifty Smallcap 100 index had a standout week with a gain of over 2 per cent, while the Nifty Midcap 100 rose just 0.5 per cent.
“A lot of these midcaps have become quite expensive. We would actually advise caution,” Pratik Gupta, chief executive officer and co-head of institutional equities at Kotak Securities, told ETNow.
