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Mumbai: The pronounced bullishness in the stock market could subside in the coming weeks if the fourth quarter results of companies fail to live up to expectations. Encouraging corporate earnings in the form of double-digit profit growth across sectors like banks, auto, FMCG and energy may be necessary to sustain the market‘s upward momentum and premium stock valuations.
Better-than-expected earnings in the third quarter despite demonetisation, a sweeping victory for the ruling party in Uttar Pradesh and the passage of the goods and services tax bills have helped the market stay buoyant in the last few weeks. The Sensex and Nifty touched record highs of 30007 and 9265 last week while foreign investors bought shares worth `4,995.46 crore during the period. Increased participation by foreign and domestic institutional investors has also been a driving factor for the market this year so far.
“It is imperative that the earnings growth materialises for this rally to sustain,“ said Navneet Munot, chief investment officer, SBI Mutual Fund.The Sensex currently trades at a valu ation of 18 times FY18 earnings, which most fund managers find expensive.
In October 2010, the market traded at a peak average valuation of 24x 2011 earnings, post which Sensex and stock valuations saw a continued correction.
But some feel low er-than-expected numbers would only mean a short blip that may not dampen sentiment much.“The rising equity culture among domestic investors, healthy foreign inflow, positive macroeconomic environment including good PMI numbers and government reforms show an encouraging picture,“ said Dhiraj Sachdev, senior fund manager at HSBC Global Asset Management. Deutsche Bank says banks, utilities and FMCG will post double-digit growth and telecom, autos and exporters may cause a drag on the Sensex’s profit growth. “Sensex PAT growth is likely to come in at 5.4%.Autos are likely to be the biggest drag due to a one-time impact of the BS-III vehicle ban,“ it said in a note.
Infosys will flag off the March quarter earnings season for large companies on April 13. Analysts expect a dull set of numbers from the company and from Wipro, which will also announce its results later in April.
“Fourth quarter numbers may not dampen the momentum while Q1 numbers would serve as a better sanity check for the market,“ said Sampath Reddy , CIO, Bajaj Allianz.
But for Reddy , geopolitical risks could be a bigger roadblock for the market.