Informist Poll

Profit booking may cap Nifty 50’s bull run in July

Informist, Wednesday, Jul 5, 2023

By Akshata Gorde and Apoorva Choubey
MUMBAI – Indian equities are expected to continue scaling fresh lifetime highs in July, but the rally may fizzle out as the month progresses, because profit booking is expected, especially once the June quarter earnings season takes centre stage.
The hope that India's growth will remain resilient in the backdrop of an uncertain global macroeconomic environment has prompted institutional and retail investors to pump money into domestic equities over the last few months.
India's headline indices rose over 3% in June, with the Nifty 50 index crossing the psychologically-important resistance of 19000 points.
For July, the buy-on-dips rally in Indian equities is largely expected to sustain, but the Nifty 50 will face resistance at 19500 points, and then at 19800 points, showed the result of a poll of 16 brokerage houses conducted by Informist.
The benchmark index will find strong support near the 18800-18900 points, the poll suggested. Today, the Nifty 50 traded lower after rising for the past six consecutive sessions and was hovering at 19300 points.
Historically, July has been a good month for Indian equities, analysts said. The Nifty 50 index has given positive returns in July in nine out of the past 13 years, they said.
"Nifty (50) all-time high reflects the confluence of two factors, namely, the relative earnings resilience of India Inc. based on strong bottom-up drivers in a difficult global macro environment and post late start, the encouraging recent progress of monsoons across India," said Trideep Bhattacharya, chief investment officer – equities at Edelweiss Mutual Fund.
The India Meteorological Department reported rainfall to be 8?low normal so far since June. In its second forecast, the weather bureau had retained its projection of 96% of the long period average rainfall during the Jun-Sep southwest monsoon season.
"Investors could be better off by staying invested and maintaining their equity allocation in line with long term asset allocation plans," believes Christy Mathai, fund manager at Quantum Mutual Fund.
Growth hurdles for the Indian economy have eased out to a large extent, as infrastructure has been improving consistently, corporate balance sheet strength has improved and financial system is in a robust state to fund the potential growth, Mathai said in a recent note.

VALUATION, EARNINGS RISKS
While fresh lifetime highs for indices are on the cards, several market participants see a possible correction as investors may want to take some profits off the table, especially if corporate earnings disappoint or commentary from managements is cautious due to global slowdown and inflation.
"Foreign portfolio investors are likely to turn a bit cautious going forward as stock valuations in the country are rich from a short-term perspective," said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services.
Foreign portfolio investors bought Indian equities worth 471.5 bln rupees in June, marking the highest inflow in 10 months.
While moderating domestic inflation, robust consumer demand in India and an impending recession in several advanced economies have made India an attractive bet for foreign investors, the spotlight will now be on whether these richly-valued companies are able to deliver earnings growth, said the chief dealer at a mutual fund house.
With inflation remaining sticky in the US, interest rates could remain higher for a longer time, thereby delaying a recovery in the global economy, he added.
Investors, both domestic and foreign, will now want to monitor performance of companies and their commentary to understand how they plan to reduce the impact of the slowdown in the global economy and other unfavourable macroeconomic factors.

The earnings season will kickstart with information technology majors Tata Consultancy Services Ltd and HCL Technologies Ltd, which are slated to release their results next week.
Even as several domestic-focussed companies, such consumer staples and discretionary makers, are benefitting from a reduction in raw material costs, sales volumes are yet to recover fully, with consumers still reeling from job losses, high credit costs and elevated inflation.
For export-oriented companies, risks are abundant and the recent correction in stock prices, for instance in the information technology sector, reflect the worry of investors.
Among sectors, the ones that outperformed recently, such as fast-moving consumer goods, real estate and automobile, will likely see some profit booking, said analysts. So far in 2023, the Nifty FMCG, Nifty Auto and Nifty Realty indices have gained 19-20%. Rotation of funds from these sectors is also possible, according to market participants.
Investors will also keep a close eye on the US Federal Open Market Committee's interest rate decision at the end of July.
Following are the support and resistance levels for the Nifty 50 index for July, based on inputs from 16 brokerage houses:

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