TCS, IndusInd Bank, Bandhan Bank, Delta Corp and Tata Elxsi were some of the big companies that came out with December quarter earnings this week.
Some of these companies posted healthy earnings, but the market did not reward them. For instance, shares of TCS settled 2.44 per cent lower at Rs 1,842 on Friday. This is even as the IT major posted its highest-ever third quarter profit. Revenues reported by the largest IT player was also at the highest level in last 14 quarters.
This is an indication that 2019 could be negative for the entire IT sector. An expected slowdown in the US could hurt these export-oriented companies and the best might be behind us.
Other than IT, the week also saw IndusInd Bank reporting a 5 per cent (YoY) growth in third quarter profit. The expectations of higher growth did not materialise. With the bank failing to provide fully for the IL&FS mess, its shares remained quite under pressure post results.
Bandhan Bank too was hit by IL&FS provisioning, but it took IL&FS exposure as non-performing assets (NPAs). The bank reported 10 per cent profit growth for the quarter.
IT stalwart TCS posted profit growth of 24.1 per cent YoY while Tata Elxsi reported a mere 5.14 per cent rise in profits YoY due to margin compression.
A look at the global scenario suggests that “all is not well.” Trade talks between the US and China concluded this week. It was extended to third day, which suggests its seriousness. The outcome of the meeting has not been made public. This delay in the disclosure of the outcome of this closed-door meeting points to something unfavourable. Had it been positive, the details would have been out by now.
No sooner are the details are out, the market will react sharply. Most likely, some disappointment is around the corner.
Event of the week
The week saw yet another merger of a young bank and an NBFC — Bandhan Bank acquired Gruh Finance in an all-share deal.
The decision was made primarily with the objective of lowering the bank’s promoter holding and expanding its housing finance portfolio. It will bring down promoters’ stake in the bank to 60 per cent, which is still much higher than the 40 per cent-cap Bandhan Bank promoters need to maintain, as per RBI requirement. IDFC Bank and Capital First completed their merger last month.
A new order is emerging in the merger of NBFCs and young banks. They are pooling war chests to create synergies to be able to compete against larger rivals.
Merging is more of a requirement in times of crisis like this, as liquidity is drying up and margins are compressing. Many such mergers can be expected in this space. Incumbent private banks may face tough competition from the merged entities.
Nifty50 has formed a Triangle Pattern, which suggests that Mr Market is not certain in which direction it will move. Besides, major moving averages (200, 100 and 50 EMAs) are converging, which further confirms that the market is in an indecisive phase and about to move sharply. The likely move will be downwards, given the structure of the Triangle. We would advise a ‘sell on rise’ with a stop loss placed above 11,000 level on the Nifty50.
Outlook for the week
The market is likely to stay volatile in the coming week. Investors would await the details of trade talks between US and China. These deltails may influence financial markets the worldover. Investors are advised to be on the sidelines and book profits at higher levels. Buying at lower levels would be prudent, given the uncertainties and muted corporate numbers.
Major results to look out for next week will be those of Wipro, SBI Life Insurance, Zee Entertainment, ICICI Lombard, L&T Infotech, AU Small Finance Bank, Mindtree and ICICI Securities.
Nifty50 ended the week 0.63 per cent higher at 10,794.
Source: Economic Times