Informist, Thursday, Mar 7, 2024
By Anjana Therese Antony
MUMBAI – Even as investors continue to keep a weather eye on the horizon for possible hints the US Federal Open Market Committee may drop about its roadmap for rate cuts this year, the Nifty 50 is likely to continue its uptrend this month due to optimism over healthy corporate earnings, resilience of the domestic economy, and hopes of improvement in systemic liquidity, analysts and market experts said.
For March, the resistance for the benchmark Nifty 50 index is seen at 22700 points, according to the median of estimates by 13 broking firms polled by Informist. The index hit its lifetime high of 22525.65 points today. It has risen 3.5% so far in 2024 and 2.3% in the last seven days.
Support is seen at 21850 points, the poll showed. Today, the 50-stock index closed over 33 points, or 0.1%, higher at 22493.55 points. This is nearly 1% lower than the median of resistance for the month and 3% higher than the support.
Foreign portfolio investors aren't super active buyers at present, but analysts are confident that domestic equities will keep receiving foreign inflows in the long term. They also see sustained support for Indian stocks from domestic institutional investors, who themselves are seeing strong traction in flows from retail investors.
"Global economies are on an improving trajectory and the domestic economy is reasonably okay," George Thomas, fund manager - equity at Quantum Asset Management Co, said. There are no serious triggers that could lead to a correction, he added.
Fund managers and analysts said they do not expect any major risk of downgrades in earnings estimates going forward. "Earnings outlook remains all right despite headwinds of global growth and moderate rural demand," Sumit Jain, deputy chief investment officer at ASK Investment Managers, said in a monthly outlook report. However, a General Election-led slowdown may impact earnings in the short term, he added.
As raw material price-led margin tailwinds are receding, earnings will be driven by improvement in revenue growth, Jain said. Moreover, the reduction in raw material prices will mean companies can pass on the benefits to consumers.
Lower prices of commodities could spur revenue growth for companies, believes Pankaj Pandey, head of retail research at ICICI Securities. Pandey does not expect any cuts in earnings per share estimates. Thomas, of Quantum Asset Management, echoed the view that inflation is moderating across the board, and this could help drive consumption to some extent.
With India's macroeconomic fundamentals remaining strong, foreign inflows into equities are anticipated to improve as the year progresses. Strong GDP growth, improving corporate earnings, softening inflation, healthy goods and service tax mop-up, and high return potential will attract foreign fund managers to Indian equities, market experts said.
"What investors look for is earnings momentum and whether valuations are on their side or not. If both factors are favourably paced, the participation should be active," Sachin Trivedi, head of research and fund manager at UTI Asset Management Co, said. Till Mar 5, foreign investors net offloaded shares worth $2.4 bln. While they net sold $3.14 bln worth of equities in January, they net bought equities worth $483.14 mln in February.
Currently, foreign institutional investors are not showing much enthusiasm as valuations appear rich, especially in the context of ongoing geopolitical tensions and expectation of a delay in interest rate cuts by the US Federal Reserve.
Expectation of a trim in key interest rates by the US central bank has now shifted to June from March. "Instead of five rate cuts, we expect three, and that should happen in the second-half of the year," Pandey of ICICI Securities said.
Outcome of the next Federal Open Market Committee's policy meeting is scheduled for Mar 20. That may also give the Reserve Bank of India a decent amount of comfort to cut rates in the second half of the year, which could relieve banks from tightened liquidity, Pandey added.
Another concern is the disruptions in shipping and trade going through the Red Sea, which is an upside risk to inflation. However, the impact is seen limited to low-single digits on Indian corporates, as logistics costs have risen a bit and some exports have been hit. Once clarity emerges over interest rate cuts and the General Election gets over in the coming months, foreign inflows to domestic shares may resume in a big way, said fund managers.
Crude oil price movements, which have also been under investors' radar since the conflict in the Red Sea, are now not seen as a major concern. Several analysts in domestic and foreign brokerage houses had said they expect crude oil prices to be range-bound due to frail demand from China. Crude looks holding at $85 per barrel and support is pegged at $78 per bbl for the month, Ajay Kedia, founder and director of Kedia Capital Services, said.
SECTORS TO WATCH
Analysts believe there are a few counters, other than banks, where valuations are at comfortable levels. One of these opportunities could be the information technology sector, as companies in the sector could see positive earnings surprises, as client budgets were underutilised in the previous year. "Though the upside is limited for IT, from a relative perspective, the sector may do better after the banking space," Thomas of Quantum Mutual Fund said.
However, as far as banks are concerned, reasonable valuations may not be enough to spur a rally in the sector, as concerns about deposit growth is a problem and net interest margins are set to compress.
"We don't see the sector contributing meaningfully to the overall market performance till there is no shift in the RBI's stance...it could happen in the second half of this year," said Pandey of ICICI Securities. State-owned banks look better because they tend to benefit more from rate cuts, he said.
The system liquidity, which is expected to be under constraint for the next one-two quarters, has to improve, for banks to perform well, said Thomas. Liquidity could improve once spending by the government accelerates post-elections, he added.
Meanwhile, there are some pockets in the automobile, pharmaceutical, and capital goods sectors that analysts are bullish about. The two-wheeler and small car segments in the automobile space, where underlying volume recovery has not yet happened and volumes remain below the peak levels in 2018-19 (Apr-Mar), are expected to grow with a rise in volume and operating leverage expected to kick in, Trivedi of UTI Asset, said. Within pharmaceuticals, generic companies are incrementally getting benefits of price stability, he added.
Further, shares of Shriram Finance Ltd will replace UPL Ltd in the Nifty 50 from Mar 28, which could lead to some selling pressure in the latter on the day before the change is effected. This could be because of portfolio rebalancing by investors, including index funds and exchange-traded funds.
Following are the support and resistance levels for the Nifty 50 index for March, based on inputs from 13 brokerage houses:
| BROKING FIRM | Support 1 | Support 2 | Resistance 1 | Resistance 2 |
| 5Paisa Capital | 22000 | -- | 22500 | 22700 |
| Angel One | 21850 | -- | 22500 | 22630 |
| Axis Securities | 22050 | 21750 | 22500 | 22850 |
| Choice Equity Broking | 21850 | -- | 22700 | -- |
| Cholamandalam Securities | 21500 | -- | 22900 | 23000 |
| Emkay Global Financial Services | 21800 | -- | 22500 | 22700 |
| Globe Capital Market | 21800 | -- | 22850 | -- |
| IDBI Capital Markets & Securities | 21530 | -- | 23000 | -- |
| KRChoksey Share & Securities | 22000 | -- | 23000 | -- |
| Lakshmishree Investment and Securities | 22100 | 21900 | 22700 | -- |
| PhillipCapital India | 21900 | 21700 | 23000 | -- |
| Samco Securities | 21950 | -- | 22850 | -- |
| Way2Wealth Brokers | 21780 | 21500 | 22600 | 22800 |
End
US$1 = 82.79 rupees
With inputs from Team Informist
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