The market started off the second week of the year on a strong note with the BSE Sensex reclaiming 60,000 mark and the Nifty50 closing above the psychological 18,000-mark, on January 10, despite mixed trend in global markets.
The broader market also traded in line with the equity benchmarks as the Nifty Midcap 100 and Smallcap 100 indices jumped 0.8 percent and 1.3 percent, respectively.
At close, the Nifty50 rallied 190.60 points or 1.07 percent to 18,003.30, and the BSE Sensex jumped 650.98 points or 1.09 percent to 60,395.63
Here are four factors that pushed the market higher:
Earnings Season
The market seems to be hoping for yet another strong earnings season. The December 2021 quarter earnings season will kick off by the IT majors and HDFC Bank in the current week.
Analysts expect double-digit growth in earnings, though it could be driven by few sectors and not broad-based due to expected margin pressure.
“Overall the earnings are expected to keep up the pace and be robust, which would ease the valuation worries that the Indian market is witnessing,” said Sonam Srivastava, founder of Wright Research.
“The December quarter earnings are expected to be firm, with strong economic growth and demand were seen in the festive season. The IT sector is expected to continue posting solid numbers. The Banking sector could also show good numbers that would be welcome and Industrials, Realty & Cement are expected to post a good quarter. On the other hand, FMCG would struggle due to low rural demand, as the advance earnings estimates suggest. Even with the growing topline, the margins could be under pressure due to inflation and supply shortages,” she explained.
After two strong quarters of earnings growth, Motilal Oswal expects Motilal Oswal Universe to register another healthy quarter of 22 percent YoY growth in Q3FY22 on a high base of 33 percent YoY growth in Q3FY21. “While the aggregate growth is impressive, it is narrow and driven by just four sectors – Metals, BFSI, O&G and IT. Two-thirds of the incremental growth is steered by Metals and Oil & Gas (O&G) sectors, with the Financials sector driving the remainder.”
Banks On Buyers’ Radar
The rally, which we have been seeing since December 21, has largely been driving by the banking space after underownership, but expectations of strong earnings growth especially after provisional numbers published by several banks strengthened sentiment further last week.
The Nifty Bank rallied 9 percent from December 31, and traded above 38,000 mark now. Today Federal Bank, PNB, RBL Bank, SBI, Kotak Mahindra Bank, ICICI Bank, IDFC First Bank, Axis Bank, Bandhan Bank and AU Small Finance Bank gained 1-4 percent, lifting the Nifty Bank to over 1.5 percent.
“Green shoots have appeared, with 10 out of 13 banks reporting double-digit loan growth as per the Q3FY22 business update. Earnings momentum from Q2FY22 is expected to continue in Q3FY22, with banks reporting better topline as a result of improved collection and solid loan growth,” said Yesha Shah, Head of Equity Research at Samco Securities.
Going ahead, “the banking sector’s quarterly results will be one to watch, as the updates have raised expectations for a better performance in Q3FY22. Furthermore, in light of recent developments surrounding the Omicron variant of Covid, it will be crucial to closely monitor management commentary from various banks on growth outlook and risk perspective,” she said.
In addition, Nifty PSU Bank index gained more than 3 percent after CNBC Awaaz reported that the government is mulling an increase in foreign investment limit in such lenders to 74 percent from current 20 percent.
The move if implemented is likely to immensely help the government’s efforts to privatise some public sector banks in the next fiscal year. Last year, the government had announced its intention to bring its stake in some state-owned banks to below 50 percent.
Realty Stocks Also Gain Momentum
Initial sales numbers disclosed by real estate companies are quite strong and healthy, driving the rally in real estate stocks. The Nifty Realty index climbed 10 percent in last three weeks, or especially since December 20.
Today the index gained nearly 2 percent as Sunteck Realty was the biggest gainer amongst them, up over 11 percent after pre-sales increased 29 percent sequentially and collections jumped 30 percent QoQ in December 2021 quarter.
Among others, Brigade Enterprises, Oberoi Realty, DLF, Godrej Properties, and Indiabulls Real Estate gained 1.5-3 percent, while Sobha and Prestige Estates ended with moderate gains today.
Last week, Sobha also recorded healthy growth in Q3FY22 as it reported sales volume of 13,22,684 square feet of super built-up area valued at Rs 1,047.5 crore in Q3FY22, up from sales volume of 11,33,574 square feet of super built-up area valued at Rs 887.6 crore in Q3FY21. Sobha share of sale value stood at Rs 908.2 crore during the quarter, up from Rs 677.7 crore in same quarter last year.
Technical View
After bullish candle formation last week, today also the Nifty50 formed bullish candlestick pattern on the daily charts, indicating positive momentum. Experts feel if the index manages to hold 18,000 mark in coming days, then 18,200-18,300 would be next resistance.
“For the ongoing leg of the rally, 18,000 stands as a sturdy wall and it would certainly be a daunting task to overcome it. Looking at last two days’ nervousness, it is quite clear why 18,000 is considered to be a key level. Now, as long as Nifty remains above 17,600 – 17,500, there is no reason to worry for and hence, such declines should be used to add longs,” said Sameet Chavan, Chief Analyst-Technical and Derivatives at Angel One.
“The only caveat for this approach would be the overnight aberration in global markets. If nothing happens on this front, we are good to go beyond 18,000 to witness a pre-budget rally,” he added.
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