Indian equities – Waiting for cues

The Indian stock market experienced a volatile week??, primarily driven by concerns over the Hindenburg report, high valuations, and mixed earnings. The week began on a subdued note and was further impacted by pressure on heavyweight stocks, leading to a negative sentiment??.

However, a sharp recovery on Friday reversed the week’s losses, with the Nifty 50 and Sensex closing with gains of around 1% each, ending a two-week losing streak. After a truncated week, the upcoming week is expected to be optimistic among investors??.

Earnings returning to normal

India Inc’s robust post-Covid earnings growth is slowing down??. While revenues expanded by a respectable 8.4% in Q1 FY25, this marks a slowdown from the double-digit growth witnessed in the preceding quarters???. As per analysts’ reports, the general elections are believed to have impacted decision-making, contributing to the moderated growth.

Let’s see how major sectors have performed:

The banking sector presents a mixed picture??. Credit growth remains strong among banks, with major banks like SBI reporting a 15% year-on-year (YoY) increase in advances. However, deposit growth has been sluggish, a concern given its importance for maintaining higher net interest margins. The sector is adapting to regulatory changes, with personal loan growth slowing down after the increase in risk weighting???. Corporate credit is being closely watched as an indicator of private capex appetite, with banks like SBI reporting a promising 16% YoY growth in this segment.

While expected to slow down this year, the auto industry??continued to exhibit momentum in Q1, particularly in utility vehicles and two-wheelers. To mitigate domestic market fluctuations, automakers are increasingly focusing on exports.

Pharmaceuticals??are witnessing a resurgence with growth (9.6% YoY revenue growth) in both domestic and US markets. Price revisions in India are contributing to the overall uptick.

Conversely, Refineries??faced a challenging quarter due to declining gross refining margins and lower chemical prices. Inventory gains provided temporary relief, but further challenges are anticipated.

The steel and cement sectors???grapple with lower realisations despite healthy demand. Cement price hikes are expected post-monsoon, driven by industry consolidation and revival of rural demand. Steel companies anticipate margin improvement from lower coal and energy costs, but Chinese imports pose a threat.

FMCG and IT sectors displayed marginal profit growth recovery in the quarter??. FMCG benefited from the rural market revival, while IT reported weak revenue growth but improved adjusted PAT. Both sectors face challenges, with FMCG dealing with intense competition and IT grappling with a weak outlook.

A silver lining in the clouds

India’s current monsoon season is becoming a boon for agriculture??. The country experienced a significant rainfall surge in July, recovering from June’s deficit and bringing the overall cumulative rainfall to 9% above average. While this encourages sowing activities, specific regions, particularly in the northwest and east, continue to grapple with deficient rainfall???. Despite these localised challenges, reservoir levels have rebounded.

The agricultural sector’s performance in the coming months, particularly August and September, will be crucial for rural consumption. While there has been modest improvement in the auto and FMCG sectors in rural areas, sustained progress hinges on favourable rainfall patterns?. The Reserve Bank of India maintained interest rates??to combat inflation, and a successful monsoon could stabilise prices.

Indian markets expect the upcoming weeks to be positive??, bolstered by eased concerns over the yen carry trade, better US economic data, and the market’s anticipation of a Federal Reserve rate cut. This optimistic sentiment is expected to continue as new IPOs and listings hit the market. Still, investors will closely monitor global trends and macroeconomic indicators for potential market shifts.

This was all for this week. We’ll be back next week with the latest market updates.

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