As the start of the third-quarter earnings season is immensely encouraging with the technology and oil and gas numbers coming much ahead of the Street’s estimates, stocks may just find the much-needed support at lower levels.
However, as some major policy announcements are expected due to the upcoming budget, Indian stock markets may remain range-bound for now.
After a sharp upswing to the psychological 50,000 mark on the Sensex, some profit booking led to huge volatility in the index. With stocks zooming 23% since the US elections were done and dusted, a bit of a correction was overdue.
Liquidity taps are flowing strong as the new US president Joe Biden has big plans for another massive round of stimulus of $1.9 trillion to lift the US economy. Some of that liquidity is bound to flow to emerging markets as it is likely to keep the US dollar soft in the coming quarters.
The Street is widely expecting more upgrades to their consensus estimates in the coming weeks as companies are showing decent growth in revenue.
Combine revenue growth with costs savings during the third quarter and most companies will show a decent uptick in operating profits.
Nifty 50 companies grew their earnings by 38% year on year in the third quarter so far, which is a huge difference over the expectations.
As the Budget 2021 will be unveiled on 1 February, stocks are more likely to remain range-bound rather than push ahead. As stock markets have already run-up significantly, the customary pre-budget rally may be subdued.
Finance Minister Nirmala Sitharaman is likely to focus on sustaining high public expenditure on infrastructure among others to revive the economy. However, some concerns that taxes could be raised have surfaced, but hopefully, the economic stimulus would be balanced with a focus on stimulating the economy further.
Global markets will take cues from the new policies that the US President will unveil. The China factor will be very much watched, and some early commentary coming from the US is showing that trade may take time to heal.
As of now, there could be huge movements in stocks based on individual results though. Stocks such as Tata Consultancy Services Ltd were star performers after posting stellar results. The Reliance Industries stock though has shown weakness post its results.
All in all, it’s a volatile market for now as investors await more policy clarity both in the US and India as large investors may shy away from taking huge positions.
