The market gave up some of the ground it gained on Friday, but there’s no harm done. Overall, it seems like the bulls are just resting. Some options buyers were discussing today why, despite the market coming down, premiums have not decreased. This indicates that the underlying strength is still very strong, and once the market gets an opportunity, it could make a significant move.
Today’s discussion is focused on Q2FY25 results—are they signaling hard times for the economy?
Where is the market headed?
Market Overview
Looking at the Nifty chart, there was a huge candle formed on Friday. In fact, in the first half of Friday, we were about to break down significantly, but we took support near the 40 DMA and moved back up strongly, closing at almost a two-month high. This can be seen as a short covering or an end-of-day rally that happened due to a squeeze. This probably led to some excesses, which explains the cool-off seen today. Ideally, I would have liked to see the market continue upward today to trap the bears, but it doesn’t seem like the market is that strong. Nevertheless, the market hasn’t fallen back on itself, and it’s likely we will spend a day or two consolidating before moving forward. The likelihood is that we are headed for a small consolidation before continuing higher.
The Nifty is down by 0.4% overall, and it’s still about 1,500 points from its all-time high, which means around 6 to 7% is needed to reach a new all-time high. A consolidation for the rest of the month isn’t a bad idea, especially since January will likely be a more action-packed month. The US presidential outcome, with a new president assuming office, will shape the narrative. From the second or third week of January, we might also start seeing expectations for the budget, though whether these will be positive or negative is still uncertain.
One thing that will be keenly awaited is the December quarter results, which will start coming in from the second week of January. So, it seems like January will be the month when things could get decided for the markets in the near term. Many institutional investors are now predicting rate cuts in India, with UBS forecasting a 75-basis-point rate cut starting from February 2025. If this theme picks up, sectors sensitive to interest rates could do well, just like they did today.
Nifty Next 50
Looking at the Nifty Junior, we saw a beautiful candle on Friday, and it actually moved above it, which is different from what happened with Nifty, which rested within an inside candle. The Nifty Junior closed 0.25% up. While there were no big moves, it did manage to close above that range, which is a positive sign.
Nifty Mid and Small Cap
Midcaps showed even more strength, rising by 0.69%, and are now just about 600 points from their all-time high. Small caps were a bit weaker, rising 0.44% for the day, but they are very close to an all-time high, which might come in the near future.
Nifty Bank Overview
Banks were flat for the day, with a 0% change, but they have consolidated within a range for some time. Just one breakout day could push the banking sector to new all-time highs. If there’s any indication of a rate cut, the Bank Nifty could zoom higher.
Advanced Declined Ratio Trends
On the CNX 500 stocks, there were 265 advances and 231 declines, indicating a fairly even distribution of gainers and losers. The Nifty is still under some pressure, likely due to FII selling.
Nifty Heatmap
There was good selling in IT stocks, while banking remained flat. Stocks like Titan, HUL, Bharti, UltraTech, NTPC, and others saw pressure today. On the other hand, in the Nifty Next 50, there was more green, especially in real estate. Stocks like DLF, Lodha, ABB, and Siemens rose significantly.
Sectoral Overview
In terms of sectoral trends, real estate was the standout performer, up 3.1% today and recovering 18.1% over the past month. In the 12-month perspective, real estate is up an impressive 45.8%. On the ground, people are seeing strong demand in real estate, despite long-standing concerns about a potential bubble. While some areas are exuberant, caution is always needed when buying or selling in real estate. We’ve been in a strong cycle since 2021, with the real pickup coming in the last three years. Who knows, we may be in for another five years of gains in the sector. However, some pockets have become extremely exuberant, so caution is advised.
Metals, IT, commodity stocks, and energy stocks lost some ground, while other sectors remained relatively flat.
Sectors of the Day
Nifty Realty Index
Looking at the real estate stocks, we see that they are attempting to break out of a flag pattern, which sets up a very good scenario for potential gains if they move to new highs. Overall, real estate stocks are looking strong, with companies like Prestige Estate, Macro Brigade, Phoenix, and others performing well.
If you’re a discretionary investor, consider looking for setups in real estate and buying on dips with proper stops. If you’re following momentum strategies, these stocks will likely start appearing in your portfolios.
Stock of the Day
Sun Pharma
Story of the Day: Are Q2FY25 results signaling hard times?
Let me first give a disclaimer: at Weekend Investing, we certainly don’t make buy or sell decisions based on quarterly results, but this content is meant to give a general perspective for all types of viewers. We’ll provide our take on the trend at the end.
We’ve been seeing headlines like “Profit Apocalypse” and “Q2 earnings shocker,” with companies like Vodafone, Samvardhana Motherson, Indian Oil, InterGlobe, and others reporting steep losses. The profit growth for Nifty 500 companies in Q2 declined by 1%, which isn’t great news. Some sectors, including cement, telecom, retail, and oil and gas, have been most affected by this earnings slowdown.
From the NSE earnings data, Nifty 50 stocks reported just 4% year-on-year growth in profit after tax for the quarter, which is quite low given the market is trading at 25 times earnings. This marks the second consecutive quarter of single-digit profit growth for the Nifty 50, which we last saw in June 2020.
Among the sectors that have shown cracks in growth are auto and banking, while there is also a growing divide between urban and rural consumption. Urban markets are seeing weak consumption demand, and the decline in rural consumption is still a concern. While the banking and finance sectors have shown some resilience, most other sectors are experiencing a slowdown in growth.
However, it’s important to note that markets tend to run ahead of actual results. Much of the bad news we are seeing in the earnings reports may already be priced into the market. Quarterly results are merely a snapshot of the past three months and don’t give much insight into the next three months. Markets often turn around quickly, and it’s impossible to extrapolate future performance based on a single quarter’s results.
For momentum investors, there’s no need for drastic action. The strategies will automatically adjust, with weak stocks dropping off and new winners coming in. If you’re a long-term investor, don’t focus too much on short-term results but instead keep an eye on the bigger picture. Even if you’re a fundamental investor, it’s important to not get swayed by short-term fluctuations.
In conclusion, making decisions based solely on quarterly results can be risky. Stick to your investment strategy—whether it’s momentum-based, quality investing, or something else—and make decisions based on that strategy. Keep your focus on the long-term and remember that market prices often reflect the future, not the past.
