The markets are expected to consolidate further as investors gear up for June quarter earnings that kick off this week.
Uncertainties and disruption due to the implementation of goods and services tax (GST) and rupee appreciation are likely to impact first quarter results of Indian companies.
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ICICI Securities Ltd said incremental uncertainty has come from the short-term impact of GST, state fiscal slippages due to farm loan waivers, bankruptcy proceedings against 12 large corporates and risks to short-term earnings. According to the brokerage firm, equity markets will consolidate in the short term given stellar performance this year and reiterated its Nifty target of 10,000 for March 2018.
The next few months may witness moderation in absolute returns and higher volatility, especially down the cap curve. It added that sentiment indicators are pointing to a tactical price or time correction in the market but it will depend on global equity market trends. “Correlations across stocks have plummeted to a low, suggesting a big macro trade is in the offing. While the market appears to believe in a growth turn, it is far from pricing in a multi-year growth cycle, implying significant upside potential in the next 3-5 years,” it said in a report on 5 July.
Companies that will announce Q1 earnings this week are IT majors TCS and Infosys and IndusInd Bank, South Indian Bank, Karnataka Bank and DCB Bank, among banks. Analysts expect export-based sectors like healthcare and technology to be underperformers in terms of net profit decline. Rupee, which has risen 5.16% from January this year, may spell trouble for export-related businesses.
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