New Delhi, July 30 Markets are on a roll and are currently trading around their lifetime highs. Going forward, expect them to trade at elevated levels, but different sectors are performing differently.
Results are a mixed bag and it's because of the differential sector performance that markets are where they are. Some of the top-performing sectors are Banking and BFSI sector, Auto sector and OMC or oil marketing companies.
Let us analyse some of the sectors that have done well and those that have not done well. For starters, IT and the Technology sectors have been under pressure. They are facing headwinds in new business and also pricing pressures.
As a result, margins have depleted and the revenue growth is down to a low single-digit as guided by Infosys. Guidance from bellwether Infosys suggests that the company would be under pressure for the coming two to three quarters at the bare minimum.
Comparatively, the mid-sized IT companies have fared better and they are in a niche segment and have found their own sweet spot to not come under as much pressure like the heavyweights.
Chemical companies have been under fire and many of the speciality chemical companies have declared results which could be termed as disastrous. China has fully reopened in the chemical space and the expansion that was underway in India has been completed.
With ample availability of chemicals, prices have softened in a big way and this has hit companies badly.
Metals have borne the brunt of falling prices across the sector. This has been more felt in the non-ferrous sector and leading companies have posted results which could be termed as disappointing.
The ferrous segment of the metal industry has survived partially because demand has been there and falling commodity prices have been more or less matched by a fall in raw material prices as well. Overall, the sector is not in the pink of health. However, what is not good for this sector is good for the auto industry.
The auto industry has had a stellar performance and almost all the popular brands of cars have a waiting list from a couple of weeks to over six months. There is demand and it appears that personal mobility is becoming a key for people in the country today. The entire sector has reported good numbers and with auto doing well, the auto ancillary sector has automatically done well too.
On the positive side, the Banking sector has been an outperformer with small finance banks which have micro banking as their core business vertical outperforming. Further small banks have done exceedingly well and the public sector banks too have turned in spectacular results. The merger of HDFC into HDFC Bank is yet another positive for the sector.
Hardly any of the banks have turned in a really muted performance worth talking about. The large banks have also chipped in with good results and the demand for funds is visible across sectors. With a weightage of around 42 per cent for the BFSI space in NIFTY, it’s been a great contributor to the rise to Mount 20K.
Crude prices are on the rise and it has affected the standalone refineries results. However, the OMCs (oil marketing companies) have done well and they have reported good results.
Heavyweight Reliance Industries had a bad performance in the O to C segment of its business because refining margins took a hit. Readers would recall that last year the government introduced a concept of a windfall tax on oil companies. Its other sectors have done well and as a result, the overall Reliance result was decent.
Companies involved in infrastructure and road-building activities have done well. Even the PSU companies in defence and railways where there is considerable government spending happening have declared decent results. They have done well for themselves and share prices have risen handsomely rewarding shareholders.
One other heavyweight in this sector is L&T which reported excellent results and announced its first-ever buyback of shares at Rs 3,000 per share. The company has earmarked Rs 10,000 crore for this exercise.
The FMCG sector has not performed well because commodity prices are not softening and rural demand has yet
to pick up.
Looking at the above analysis it is quite clear that maybe around half the market is firing while the other half is yet to fire or has already fired and cooled off. If things improve when the second quarter results are announced, things could be much better.
To sum it up, markets live on hope.
(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)
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