The weakness of the US market, the global technology correction, weak GDP and border tensions with China have played a spoiling role with the rise in the markets. This will continue to keep stocks leading this week. Investors are also taking money off the table. Markets are overbought, while valuations are strained.
In a recent note, analysts at Jefferies India said, “Nifty is up 57% from the March 23 low. 1-year Nifty EPS has been down 26% since then, although it is up 1.6% from the 3-week low back. The expected 1-year Nifty PE at 21.1x on consensus earnings was only last seen during the 2000 tech bubble. “Of course, adjusted against the risk-free rate, valuations look reasonable. , notes Jefferies.
Even then, caution is in order. GDP for the June quarter was a nightmare. The Indian economy contracted by more than 23%, more than expected. The informal sector, which is not taken into account in official GDP data, continues to suffer from the pandemic. In fact, other indicators point to more pain to come.
In August, the Manufacturing Purchasing Managers Index (PMI) rebounded towards the expansion zone, crossing the 50 mark for the first time since March. However, the dismal state of Indian service providers has weighed on overall business activity. Therefore, the composite PMI data is still in the contraction zone at 46 in August.
In addition, revenues from goods and services, which fell 12% year-over-year for July, collected in August, offer little hope of recovery.
Regarding macros, industrial and manufacturing production data will be released this week. Part of this will show an improvement over the last version, but manufacturing in India is still running below maximum capacity.
Interestingly, passenger vehicle sales showed a marked improvement in August. A recovery in sales is due to the need for personal mobility. Manufacturers are also restocking the inventory channel in anticipation of a resumption in festival season sales. However, it remains to be seen whether this demand persists.
On the business front, the Supreme Court has postponed the hearing in the loan moratorium case to September 10. Accounts not reported as non-performing assets as of August 31st will not be reported until new orders.
Regarding the long-awaited telecom case, the SC ordered the telecom companies to make an upfront payment of 10% of their AGR dues, with the rest of the payments starting from April 1, 2021. This will give Vodafone Idea a chance to survive. In addition, the company seeks to mobilize resources.
On the earnings front, Coal India Ltd’s first quarter was hit hard by covid-19. A pick-up will depend on the increase in the levy, which also depends on the electricity sector.
Page Industries Ltd’s results were weak.
JK Cement Ltd announced its results last week, which saw an improvement in market share.
In addition, the initial public offering (IPO) of Bengaluru-based IT services company Happiest Minds Technologies Ltd will begin on September 7. It will close on September 9 and the company has set the price range at ₹165-166.
At the same time, Sebi’s new margin system, which applies even to the sale of old stocks, has an impact on trading volumes. Analysts warn the mid and small cap segment will experience increased volatility and lower liquidity given this new trading standard.
However, the entries will decide the direction of the market given the absence of major developments on the home front. So far this calendar year, foreign investors and domestic investors have been net buyers of Indian stocks. But given the volatility, investors should keep their fingers crossed.