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Test Of Markets Begins With Q1 Earning Season

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Test Of Markets Begins With Q1 Earning Season
Yagnesh Kansara - 06 July 2020

Software bellwether TCS to announce its Q1 FY’21 results on July 9

An interesting week is ahead for the equity investors as it will unveil the reporting of Q1 earnings of FY’21 from Thursday July 9, 2020. The software major from the Tata Group TCS will come out with its Q1 results on that day. This is significant as it will lay the foundation of earning season of Q1 FY’21, which was almost washed out for the entire corporate sector as major part of three months period entire corporate world was under lock down imposed by the government to prevent the spread of Coronavirus.Interestingly, the TCS stock has witnessed tremendous buying interest in the last two weeks and reached closer to its record high before the results.

Though there is a lot of optimism on the Street and global equities on the hope of positive developments on drug trials, Jimeet Modi, Founder & CEO, SAMCO Securities, said, “We assume the market is overbought in the short term and expect limited upside. Going ahead we suggest investors to remain cautious as any negative development on global equity might trigger a risk aversion sell off.”

It is expected that a definitive movement in markets may be visible once India Inc. unveils its Q1FY21 earnings performance with its first-hand analysis of ground level reality. In general, both investors and traders are advised to stay away from the vicissitudes of current market, Modi added.

Trading week ended on Friday July 3, 2020 the benchmark indices S&P Sensex and Nifty ended with a gains of 2.4 per cent and 2.2 per cent higher respectively at 36,021.42 and 10,607.35 points. It turned out to be a good week for the bulls as the Nifty index surpassed the major hurdle at 10,550 (200 EMA) on the daily chart and settled with the gains of over two percent. There was some hesitation in the first two sessions but the tone changed as the week progressed, thanks to upbeat global markets. Besides, encouraging cues from the local front viz. improvement in auto sales on month-on-month (MoM) basis and an uptick in the manufacturing PMI data also boosted the sentiments. Amid all, the sectoral indices exhibited mixed trend as IT, auto and consumer durables ended with decent gains while other indices like realty, metal and healthcare were the laggards.

Vinod Nair, Head of Research at Geojit Financial Services, said “Globally the US monthly employment report and domestically the PMI survey seemed to indicate that the worst of the lockdown economic impact is over. However, any extension or resetting of lockdown measures, due to increasing infections, could negate the gains”.

Rising penny stocks raises a cause of concern

A peculiar historic trend during bull market tops is observed currently. From beginning of April wherein general markets have moved higher, there are dozens of companies with negative equity value, aka Penny stocks have moved higher hitting daily circuit filters. Some of them like GTL Infrastructure, JP Associates, Unitech, R Power, Jain Irrigation, Sintex Industries etc. having moved higher by 300-500 per cent. No wonder market veterans are surprised by the rally in frontline stocks but the underlying reason which is driving the stocks higher can be deciphered from this strange movement in penny stocks. It is further surprising that this trend of Penny stock buying is also visible in US and other countries as well.

While cautioning the retail investors, Modi said, “Theretail investors, the Indian version of Robinhoodtraders, who are at home during this lockdown tappingthe prices higher. It is quite likely that they may also have invested in frontline stocks; however, conspicuously their high interest in penny stocks is quite visible and frightening. Handful of these penny stocks have also now started to reverse the trend and are hitting lower circuits. It’s time to be cautious!”

Deepak Jasani, Head Retail Research, HDFC Securities, said, “Technically, with the Nifty continuing to move higher and crossing last week's highs of 10,554, the bulls remain in control. The Nifty could attempt to target the 10,889 levels in the coming week, where the 200 day SMA currently resides. On the downside crucial supports to watch for resumption of weakness are at 10485.”

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