India’s stock market indices surged on Monday, snapping a two-day losing streak, as investors piled into index-heavyweight Reliance Industries Ltd following stellar quarterly earnings, sending the stock to a six-month peak.
Markets are poised to consolidate their gains in the coming sessions, subject to geopolitical conditions not worsening, said analysts, whose view of the January-March earnings remains mixed. However, they are unanimous that the markets will fall if the tensions between New Delhi and Islamabad escalate, after terrorists linked to Pakistan-based Lashkar-e-Taiba gunned down 26 tourists in Jammu & Kashmir’s Pahalgam last week.
The rally in the oil-to-telecom major drove the Sensex to a four-month closing high of 80,218.37, up 1.27%. The Nifty jumped 1.2% to close at 24,328.50, also led by gains in Reliance, which accounted for two-fifths of the 50-share benchmark’s 289-point gain on Monday.
Investor wealth rose ₹4.53 trillion, propelled by foreign portfolio investors buying shares worth ₹2,474 crore. Domestic institutions purchased stocks worth ₹2,818 crore.
“The flows have improved but they are not backed by earnings thus far,” said Nilesh Shah, managing director, Kotak Mahindra AMC. Shah added that the prevailing geopolitical tensions could increase the volatility.
Analysts expect foreign flows into Indian markets to continue.
“We expect money to continue to flows out of US markets, which are the primary markets for global liquidity. As liquidity moves out of these markets, we anticipate continued inflows into India under normal circumstances. However, if the India-Pakistan issue escalates, over the short term there may be some knee-jerk reaction and things should settle down. If this does not unfold as expected and tensions escalate further, there could be some challenges. Otherwise, considering the current state of our economy and the steps the government has taken to stabilize growth, we expect India to continue attracting investment, whether passive or active,” Sumit Bhatnagar, equity fund manager at LIC Mutual Fund, said.
Reliance gained 5.3% to settle at ₹1,368.8, closing above its 200-day moving average of ₹1,339.98, a bullish sign. This was also the highest closing for the stock since 21 October last year, when it settled at ₹1,369.2.
On Saturday, the company posted a consolidated net profit of ₹22,434 crore in Q4FY25, beating a Bloomberg estimate of ₹18,471 crore.
However, Monday’s gains came on marginally lower volumes, which led to Reliance stealing the limelight. Volumes on NSE, the country’s largest stock exchange, stood at ₹90,099 crore, which was below the average of ₹99,616 crore in the month so far.
After Monday’s rally, the Nifty has recovered over 50% of its 4,534-point fall from a record high of 26,277.35 on 27 September to a multi-month low of 21,743.65 on 7 April this year.
The next major resistance for the bellwether index is at 24,545, which coincides with a 61.8% recovery from the low of 21743.65.
The earnings growth for the early birds of Q4FY25 has been muted, compared to the earnings growth of early birds in Q4FY24. The year-on-year net sales growth for the 215 early-bird companies in Q4FY25 was at 4.89%, compared to 14.77% in Q4FY24.
G. Chokkalingam, founder of Equinomics, believes that earnings were an improvement, but warned that escalation in border tensions could queer the pitch for the recovery that got underway after 7 April.
Independent analyst Ambareesh Baliga said though Reliance performed better than most estimates, he remained uncertain whether this rally could yet be construed as a turning point for the stock.
“We will have to wait and see whether the rally means a turnaround for the stock which has been a laggard in recent times. Also, the quarterly earnings have so far not enthused me to the point where I can say the market rally will persist,” Baliga said.
Reliance has underperformed the Nifty since 1 October last year when the market correction began. While Reliance has lost 6.5%, from a high of ₹1,464.8 on 1 October to ₹1,368.8 on Monday, the Nifty has shed 5.7% from 25,797 to 24,328.5 over the same period.
While a deepening of the border row could cause a correction, analysts like Baliga don’t expect markets to revisit the low of 21,743.65 hit on 7 April.
Apart from the benchmarks, the broader markets led by the Nifty Midcap 150 hit a two-and-a-half-month high of 19,966.7. However, unlike the Nifty 50, the Nifty Midcap 150 trades below its 200 DMA 20567. The Nifty, which closed at 24,328.50 on Monday, trades above its 200-day DMA of 24,050.9.
Among the most active equities traded on the NSE apart from Reliance included defence names such as HAL, Mazagaon Dock, Garden Reach Shipbuilders and Engineers, and BEL, which rose between 2.6% and 8% on Monday.
The recent rally has been led by FPI flows of ₹32,687 crore between 16 April and 25 April. Over the same period, DIIs have contributed a lower value to the rally of ₹3,387 crore.
On Monday, traders sold more puts than calls, a sign of bullishness as they don’t expect markets to fall in the current week. The put-call ratio of all Nifty options put together increased to 1.21 on Monday from 0.87 on Friday. This means that for every 100 calls sold, traders sold 121 puts with a view to pocketing the premiums paid by the put buyers in the event of the markets rising.
George Thomas, fund manager- equity, Quantum AMC, said that the economy has been facing a slowdown for the past few quarters, and that trend continues, with weak results, except for a cement player showing good volume growth, possibly aided by government capex. He added that while consumption and credit growth remain weak, factors like benign inflation, rate cuts, and budget tweaks to boost disposable income for salaried individuals could help improve things.
“Looking ahead, Indian markets have historically seen 12-13% earnings growth, and this trend should continue, even if the market remains flat for a while. With earnings growth expected to pick up, valuations should become more attractive, and we remain optimistic for the long term,” Thomas added.
(With inputs from Ram Sahgal)
Source:https://www.livemint.com/market/reliance-sensex-nifty-earnings-growth-geopolitical-tensions-markets-11745847003437.html