RBI policy, Q3 earnings in focus as markets halt slide

Defensive sectors such as pharma, ITC and FMCG led the gains while banks ended mixed

Benchmark share indices snapped a three-week losing streak in a truncated week after a rebound in crude oil prices.

In the week ended January 30, the benchamark S&P BSE Sensex ended up 1.8 per cent at 24,871 and the National Stock Exchange’s Nifty also gained 1.9 per cent to close at 7,564. The broader market outperformed the benchmark indices. The BSE Midcap index ended up 2.2 per cent, while BSE Smallcap index gained 2.6 per cent.

“The positive cues from the global front such as bounce back of crude oil and Bank of Japan’s decision to keep the interest rates negative also supported the markets,” said Alex Mathews, head–research, Geojit BNP Paribas Financial Services

Global events

The US Federal Reserve at its two-day policy meet kept interest rates unchanged, citing growth concerns, and said it was “closely monitoring” global economic and financial developments.

Further, in a surprising move the Bank of Japan at its monetary policy review announced a negative interest rate policy in which the central bank has reduced the deposit rate on excess reserves parked by commercial banks to -0.1 per cent compared with 0.1 per cent earlier.

 

Market roundup

The week witnessed the renewed buying interest in the defensive sectors, as market participants shielded themselves from the volatility ahead of the expiry of January derivative contracts.

Pharma, information technology and fast-moving consumer goods (FMCG) stocks led the winning streak during the week under review, while bank stocks witnessed a mixed trend after their third quarter earnings performance.

In the pharma segment, Sun Pharma was the top Sensex gainer, with double digit gains, as its subsidiary Sun Pharma Advanced Research Company received Securities and Exchange Board of India’s approval to raise up to Rs 250 crore via rights issue.

Dr Reddy’s Labs also ended nearly eight per cent higher after it received US Food and Drug Administration (USFDA) nod for ZembraceSymTouch (sumatriptan succinate) injection, a drug-device combination product intended for the treatment of acute migraine in adults.

ITC and Hindustan Unilever ended up 3.5 to 5.7 per cent each.

IT exporters also emerged winners after encouraging US economic data boosted sentiment. Infosys, Wipro and TCS ended two to four cent each.

Some of the Sensex companies that announced their earnings for the quarter ended December 31, 2015 include Maruti Suzuki which ended flat despite 27 per cent growth in net profit as margins contracted on account of higher spend in advertisement.

ICICI Bank ended lower after it reported a net profit of mere four per cent in the third quarter at Rs 3,018 crore on account of higher provisioning. The Reserve Bank of India (RBI) has articulated the objective of early recognition of non-performing assets (NPA) resulting pressure on asset quality.

HDFC Bank gained after it reported a 20 per cent growth in net profit at Rs 3,357 crore, on the back of a higher other income and net interest income.

Bharti Airtel eased over three per cent after posting 22 per cent decline in its net income at Rs 1,117 crore in the December quarter on the back of higher interest and spectrum costs.

Mortgage lender HDFC ended marginally higher after it posted a mere 6.7 per cent growth in standalone net profit at Rs 1,521 crore for the quarter ended December 2015, on lower income from investments and higher provisions for standard loans. Engineering major L&T ended down over three per cent after third quarter consolidated net profit was lower than estimates. Net profit was up 19 per cent to Rs 1,035 crore against a Bloomberg consensus estimates of Rs 1,040 crore.

Week ahead

Market partcipants will be eagerly awaiting the Reserve Bank of India’s first monetary policy review in 2016 at its meeting scheduled on Tuesday, February 2. Auto stocks will be in focus as they would start releasing sales numbers for the month of January 2016.

“The next week will be data heavy as we will have automobile sales numbers, PMI data and the Reserve Bank governor taking a decision on rates. This is the last meeting of the RBI before the budget and with the clean-up by banks as desired by RBI and government fiscal deficit being under control the RBI governor could cut rates by 25 bps. We expect markets to continue the momentum of the week with any rate action by the RBI governor acting as fuel to the fire. Auto stocks should be in focus with sales numbers as should budget beneficiaries,” says Ravi Shenoy, AVP-Midcaps Research, Motilal Oswal Securities Ltd.

Among the major companies that will announce their third quarter earnings include, Tech Mahindra, Bajaj Auto, Tata Steel, Lupin and Bosch among others.

Further, manufacturing and services PMI data for January from Nikkei India will also be closely watched.