Global risks, weak IT a drag on stocks, but take heart from Bank Nifty, says this analyst

The Nifty50, which on April 4, shot past the 18,000 level, gave up 1.7 per cent in the current truncated week, while the BSE Sensex shed 1.9 per cent.

While there is a strong resistance around the 18,100 level for the Nifty50, unlike the previous year, the weakness is not being driven by the banking space and this is critical to charting the future direction of markets, Siddarth Bhamre, Research Head at Religare Broking told ETMarkets.com.

“Bank Nifty charts are not showing signs of immediate weakness. However, IT space barring TCS has been weak and Infosys results are not encouraging…. IVs (implied volatility) have corrected for both Nifty and Bank Nifty,” said Bhamre.

Tellingly, the decline in the Nifty Bank index this week was less than that of its headline peers, with the index shedding 0.8 per cent.

For the week ahead, stock markets could see fresh declines as investors react to disappointing fourth-quarter results by IT heavyweight Infosys, Bhamre said. Index heavyweight HDFC Bank is also set to declare earnings on Saturday, which would drive stock prices.

India’s second-largest IT company on Wednesday reported a 12 per cent YoY rise in net profit at Rs 5,686 crore compared with Rs 5,076 crore in the same quarter last year. The figure fell short of Rs 5,850 crore predicted by an ET NOW poll of analysts.

The firm’s revenue growth at 1.2 per cent sequentially in constant currency terms missed the consensus estimate of 3 per cent, growth partly due to a one-off client-specific issue, while the EBIT margin of 21.5 per cent also fell below the consensus estimate of 23.2 per cent.

“Market will react to disappointing Infosys results and also to HDFC Bank results, which will be on Saturday. So, in the coming week, we may see some more red colours on the screen led by non-banking names. On a positional basis, the Nifty has support in 16,800-17000 zone,” Bhamre said.

Bhamre also flagged risks from the resurgence in selling pressure from foreign institutional investors and global crude oil prices, finding support around the $100 per barrel mark.

After embarking on massive sales of equities in the first three months of 2022, FIIs had begun to reverse that trend in April. However, the latest NSDL data suggests that FIIs offloaded around Rs 4,000 crore worth of stocks on Wednesday.

STOCK PICKING

For those looking to add to their portfolios, Bhamre said that private lender Bandhan Bank has shown strong signs of a base formation and can be used to buy on dips.

“Moving above the 340-350 zone -which is quite likely- can lead to significant upside,” he said. Bandhan Bank’s stock settled at 2 per cent lower at Rs 326 on the BSE on Wednesday.

Bhamre was also optimistic about crop care firm Rallis India, a Tata subsidiary, pointing out the stock had given a breakout above the downtrend resistance line.

“This has positive implications. Also, volumes in this breakout are strong, which adds weightage to this upmove.” Rallis India’s stock closed 2 per cent higher at Rs 283.75 on Wednesday.

The analyst has a negative view on aluminium major Hindalco as the stock looks weak because of a fresh build-up of short positions in the futures as well as a breakdown from the support of Rs 560 on heavy volumes. The stock closed 1 per cent higher at Rs 546.55 on Wednesday.

In the realty space, if one were to pick a stock, Bhamre recommends buying Oberoi Realty and avoiding Kolte-Patel Developers.

Speaking about broader markets, Bhamre said that large-cap banking names, except HDFC Bank, were showing strength.

The mid-cap and small-cap space, too, has not shown any signs of major weakness, although stock-specific action is the strategy for the moment, he said.

“For short term investors, we suggest that in an uncertain environment a big exposure in space can be avoided as of now.”

“…on the index front as well, we are not very far away from all-time highs. Take exposure based on the merit of stocks and not to be leveraged.”