Stocks seen bullish next week but earnings will dictate market strength

The strong beginning to the September quarter earnings season has improved confidence among investors and speculators alike, but analysts said the earnings momentum will need to sustain in order to replicate this week’s move.

The mantle will now shift to banks and fast-moving consumer goods companies from IT services majors, as HDFC Bank and Avenue Supermarts will declare their September quarter numbers on Saturday. HDFC Bank’s earnings will hold greater importance as it could dictate the tone for Nifty Bank index for the remainder of the week.

Reliance Industries will also be in the helm of things as investors may look to build positions in the stock ahead of its September quarter earnings on October 22. Analysts are expecting a strong show from all three businesses of the conglomerate.

In a truncated week, the benchmark indices rose nearly 2.5 per cent aided by sharp gains in IT services, banks and Reliance Industries. Optimism for the festive season and acceleration in vaccination also buttressed the risk appetite of investors.

The enthusiasm was greater in the broad market with Nifty Midcap 100 and Nifty Smallcap 100 index rising 3.4 per cent and 2.6 per cent, respectively, as many sectors benefiting from the reopening of the economy led the gains.

Retail investors remained the preeminent buying force in the market but were joined by foreign portfolio investors who turned net buyers in the last two sessions of the week after being net sellers for six consecutive days.

Positioning in the options of the Nifty50 index indicated that traders are heading into the next week with optimism. Today, traders bought out-of-money call options of the index up to 18,700 strike price suggesting that they expect the index to test that level soon.

However, technical analysts recommended that traders exercise some caution in taking fresh long positions in the market given the scope for limited gains from current levels.

“The benchmark index is also approaching the rising resistance line, which indicates a limited upside potential in the short term. We suggest traders to not create fresh long positions and wait for mild dips to time their entry better,” Samco Securities said in a note.