Stock Market: Earnings season is off to a lukewarm start! Here’s how to navigate the market now
So far in April, DIIs have absorbed less than 60 percent of FII sales. DII uptake over the past two months has been close to 92 percent. Moreover, even between October and February, pooled investments by DIIs and individual investors exceeded the net sales of FIIs. Now with signs emerging that increased retail participation in the short term may not be thriving in the least, it remains to be seen if retail participation can hold up.
Over the past two years, there has been a huge influx of retail investors as a result of the rapid returns that the stocks have made. However, since the market has performed poorly over the past six months, retail investors may feel less incentive to trade with the same hesitation.
Even with the full opening of the economy, equity investment may be actively pushed to the margins for many of them. Moreover, higher inflation is likely to reduce the disposable income of retail participants, thus reducing investable funds. Furthermore, with SEBI banning non-financial organizations through the end of June, additional investments above SIP may be limited. So, taking all this into account and the fact that retail investors tend to avoid losses, it will be interesting to see if they can survive a long period of poor returns.
Chances are that given the scale of fear and volatility in the markets, they may delay making new investments until a glimmer of hope emerges.
The start of the results season failed to calm market sentiment as most of the positives even on the earnings front are fully priced in at current valuations. What is observed is that stock price reactions are amplified for each hit or miss against market expectations.
On the basis of the IT companies reporting their results so far, the numbers are not as disappointing as the market has portrayed it. Management’s comment indicates that there are more supply-side issues eating into margins and that the overall outlook remains optimistic as underlying demand is strong.
However, stock price movements indicate that the market is now beginning to downgrade these stocks considering the lack of margin and rich valuations. This can also be partly attributed to the technological carnage we are witnessing globally. Given that the future of the IT sector is still promising, investors can now look at companies where the risk returns are favorable for starting long-term investments.
While the Nifty50 ended the week negative, it quickly regained most of the losses after retesting the crucial 16800 support in the middle of the week. Smallcap and midcap indices are outperforming benchmark indices, which is a bullish sign. While the index is now constrained within a wide range of 16.800 to 18100 levels, we recommend maintaining a moderate bullish outlook ahead. With 16800 emerging as a strong support, traders are advised to stay alert, as a decisive break lower could lead to weakness in the short term.
The quarterly results of the companies will continue to take center stage and will be the main factor driving the direction of the market. Moreover, given the monthly expiration, the volatility will be on the higher side. The market will also monitor with great interest the state of war, the movement of treasury returns and the dollar index. Moreover, due to the resurgence of Covid cases in some areas of India, the pace of infection will also be tracked. With these factors in mind, market movements will be choppy.
Therefore, investors are advised to act with caution. Nifty ended the week at 17,171.95, down 1.74 percent.