India Inc’s robust Q1 earnings ignite interest in large-caps

Mumbai - Retail investors could do a bit of reshuffling from small-caps into mid and large-caps

A healthy quarterly earnings season along with foreign fund inflows are expected to push India’s equity markets higher this week.

Accordingly, market observers say healthy earnings that have been announced have ignited investors’ interest in large-caps and expanded volumes.

Lately, Infosys and Wipro have come out with encouraging quarterly numbers. In the upcoming week companies such as ACC, HCL Tech, Asian Paints, Bajaj Finance, Bajaj Auto, HUL, JSW Steel, ICICI Bank and ITC are expected to report their results.

“Indices could continue to edge upwards in the coming week, which is a truncated week with a holiday on Wednesday,” said Deepak Jasani, head of retail research at HDFC Securities.

“Retail investors could do a bit of reshuffling from small-caps into mid and large-caps.”

Last week, India’s equity markets touched new record highs supported by a positive US Fed statement and encouraging macroeconomic data points.

However, rising Covid cases globally continue to instill caution in investors’ sentiments.

“The earnings season has started off on a strong note and is providing support to the market. Since restrictions this time around was localised and less stringent versus the lockdown in 2020, the impact on the first quarter of fiscal year 2022 seems to be contained,” said Siddhartha Khemka, head of retail research, broking and distribution at Motilal Oswal Financial Services.

“We expect earnings momentum to accelerate in fiscal 2022 as the pace of vaccinations picks up and the economy opens up further.”

Besides, sector-specific buying in IT, pharma and realty have accelerated in anticipation of strong quarterly earnings. “We expect this sector-specific momentum to continue during the weeks ahead,” said Geojit Financial Services’ head of research Vinod Nair said.

“However, lacklustre global market and FII net sellers are likely to increase volatility in the market.”

According to Joseph Thomas, head of research at Emkay Wealth Management: “The healthy set of earnings numbers from IT majors has buoyed sentiments. Even as FIIs remained net sellers, markets have received support from the DIIs. Overall the sentiment is positive as there has been a robust start to the earnings season by IT companies.”

“For the coming week as well the focus would remain on earnings and this factor may dictate the market’s direction. On the global front, the factors to monitor would be macroeconomic data coming out of the US, such as housing starts and jobless claims,” Thomas added.

Rupee expected to weaken further

Meanwhile, high imported commodity prices are expected to weaken the Indian rupee against the US dollar this week, experts said.

Besides, the possibility of IPO money outflow to foreign venture capitalists will impact the rupee’s position against the greenback. Last week, the rupee consolidated in a narrow range and has been having a muted reaction despite various data releases.

“The rupee is expected to weaken... due to higher crude prices and a possible outflow of IPO money going back to foreign venture capitalists,” said Sajal Gupta, head of forex and rates at Edelweiss Securities.

The rupee closed at ₹74.5650 per dollar on Friday.

“The safe-haven bets for the dollar are still intact and after [Fed chair Jerome] Powell’s testimony, forex traders aren’t convinced over the insistence of a dovish outlook,” said Rahul Gupta, head of research for currency at Emkay Global Financial Services.

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