Week Ahead | Markets to take cues from earnings, economic data

This week, consolidation in the markets is likely to continue with July-September (Q2) earnings likely to drive stock specific action. On the economic calendar front, India, China and the United Kingdom will announce their inflation numbers. The European Central Bank interest rate decision will also be a key event to watch out for. China GDP and India’s industrial production will also be released.

Last week, Nifty continued its fall for a second consecutive week, dropping by 0.2 per cent (50 points). After the sharp fall of the previous week, the index consolidated and traded sideways amid relentless selling by FIIs and the absence of any major triggers. Broader markets however bounced back with Midcap 100 and Smallcap 100 both up 1.3 per cent. Sector-wise, it was a mixed bag with buying seen in IT, realty, auto and pharma. FMCG, metals, banks and energy saw selling pressure.

Domestic equities mid-week cheered RBI’s change in its stance from ‘withdrawal of accommodation’ to ‘neutral’, though it kept the repo rate unchanged and remained focused on maintaining the inflation target while supporting growth. The change in stance now opens the room for rate cuts in the upcoming meetings. The RBI retained FY25 GDP growth estimates at 7.2 per cent, while the CPI Inflation forecast for FY25 remained at 4.5 per cent.

Earnings started with IT major TCS announcing in-line numbers. Now all eyes will be on Infosys results this week and management commentary on revenue growth guidance. Other prominent companies that will announce their earnings this week include Reliance, HDFC Life, Axis Bank, Wipro & LTI Mindtree. Thus, heavyweights are likely to be in focus.

FILE PHOTO: The logo of Axis Bank is seen on an advertisement at its branch in Mumbai India January 22 2018.

After four years of healthy double-digit growth, - Nifty’s earnings grew by 24 per cent CAGR over FY20-FY24 - corporate earnings are moderating. We expect Nifty earnings to grow marginally by 2 per cent year-on-year in Q2 mainly dragged by commodities. Excluding global commodities, Nifty earnings is likely to grow at 10 per cent for the quarter.

On the global front, the Federal Reserve meeting minutes showed a substantial majority supporting an outsized half-point rate cut, though the move would not commit the Fed to any particular pace of cuts in the future. US inflation too came at its lowest in 3 years but some price pressures remain. This comes on the heels of positive jobs data.

Overall we expect markets to consolidate at higher zones and take cues from global factors & result season.

(The author is head of Research, Wealth Management, Motilal Oswal Financial Services Ltd)