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Tips for Trade: Stronger Q1 results may lift up market momentum

If you missed our coverage, here are the top 10 stories of the day.

Dreamliners at Boeing's production line in Washington.
Dreamliners at Boeing's production line in Washington.

India’s equity markets witnessed a smart session on the second day of the week. The benchmarks closed on a positive note on the back of the positive global sentiments. The Nifty settled well above 5300, taking cues from a strong session in Europe.


The Sensex soared over 226 points or 1.3 per cent to 17,618, while the Nifty gained 70 points to 5,345. The rupee, too, traded at the highest point of the day, rising 42 paise to the dollar at 3.40 p.m.

The biggest turnaround was seen in FMCG stocks, which closed with biggest gains after trading lower for most part of the session. ITC was the top Sensex mover, contributing 44 index points to the BSE benchmark.


Banking, power, realty, auto, capital goods and consumer durables stocks ended 1-1.75 per cent higher. Metal stocks rose despite China reporting a slowdown in imports.


On our show Tips for Tomorrow, Pankaj Pandey, Head - Research, ICICIDirect.com and David Pezarkar, Head Equities ,Daiwa Asset Management, discuss the market performance of the day.

MARKET MOMENTUM PICTURE


In Pankaj Pandey’s view, if the market can sustain above the 5350 level, then achieving the 5470 level is possible. “Expect more stock specific action in the market due to the first quarter results,” he said.


David Pezarkar said that positive surprises could add to the momentum. “It will depend on the result trajectory. The momentum will continue to be positive if the first quarter results are good,” he added.

INFRASTUCTURE STOCKS


“Infra stocks have been beaten down substantially. One needs to be selective in these stocks. The approach should be light on these stocks,” said Pandey adding that he is yet to see action from the government on policies in the sector.


In Pezarkar’s view, there will be retail participation only if the underlying sentiment is bullish. “We are not seeing much institutional participation,” he said.

HDFC PREVIEW


Pandey is expecting 30 per cent growth in HDFC's earnings. He is more positive on PSU banks, especially Tier-I banks. “Deterioration in asset quality may not be high in SBI, PNB or Bank of Baroda. However, asset quality issues are likely to persist in IDBI, IOB and OBC,” he said adding that the private sector banks are likely to do well in terms of earnings.


Pezarkar said that the expectations from private banks quite high. “We are expecting between 20-25 per cent growth across the board. Private sector banks should be able to deliver,” he said. He prefers private sector banks against PSU banks.

IT EARNINGS


Pandey feels that the first quarter is likely to be soft for the overall for the sector. He is expecting Infosys to deliver negative 0.5 per cent growth in dollar revenues. He expects 0.5 per cent growth from Wipro, while around 2 per cent growth from HCL Tech and TCS. “The rupee benefit might get negated as TCS and Wipro had a salary hike during the quarter,” he clarified.


Pezarkar said that the first quarter is not expected to be strong for IT firms. “Margins pressures are likely to see a hike in wages. Underlying dollar revenues are likely to be flat. However, the rupee movement will benefit IT companies,” he explained.


He further said that some benefit can be accrued due to currency depreciation. “Expect higher rupee guidance due to depreciation, while US dollar revenues guidance may be cut,” he added.

SECTOR VIEW: FMCG


“If monsoon is weak, profit taking could happen in FMCG, cement and two-wheeler stocks,” said Pandey. He is expecting FMCG companies to deliver 20 per cent topline and bottom-line growth in the first quarter.


Pezarkar said that weak monsoon will have an impact on the product demand. “We will wait to find out if monsoon has recovered. If monsoon is poor, then consumption oriented stocks may get hit,” he explained.


He further added that a hike in the minimum support price (MSP) will be positive for agriculture as it will boost farm income. “We can see a trickle down impact of it on the farm sector. The volume growth story is unlikely to be hit significantly,” he added.