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Smooth rollout of GST, followed by a rally in ITC (post removal of excise), value buying in pharma stocks, hopes of early recovery in PSU banks' earnings and rainfall of 5 percent more than normal helped the market close sharply higher in the passing week.

Despite geopolitical tensions, the 50-share NSE Nifty gained for the first time after a negative close for three consecutive weeks, up 144.90 points or 1.52 percent at 9,665.80.

The Nifty decisively surpassed 9,600 level on Monday and held it throughout the week, which indicated that the market turned stronger after recent correction and is poised for breakout on upside. Considering no major negativity (due to GST and its impact on earnings) in short term and also consistent liquidity support, the Nifty is likely to cross 9,700, at least initially in the coming week, owing to better-than-expected US jobs data (at 2.22 lakh jobs against the expectation of 1.79 lakh).

If the rally happens, then whether that will hold or not is completely dependent upon IT majors Infosys and TCS, which will kick off the June quarter earnings season later in the week."Q1FY18 earnings and possibly the next quarter are likely to be non-events as the economy gears up for the GST challenge. We believe the market is likely to focus on long term benefits that would accrue from this structural change,".

While reiterating the Nifty target of 10,000 for March 2018, the research house said it believes that equity markets will consolidate in the short term given the stellar performance so far.The Nifty has surged more than 18 percent in current calendar year on continued hopes of economic as well as earnings recovery in the second half of FY18, despite geopolitical tensions.

Earnings

IT companies TCS and Infosys and banks like IndusInd Bank (July 11), South Indian Bank, Karnataka Bank, DCB Bank will kick off June quarter earnings season in the coming week.For IT sector, slowdown in banking & financial services and weak retail business may impact revenue growth while wage hikes and visa cost may hit margin performance, while asset quality performance along with provisions will be key factors for banks' earnings, but IndusInd Bank is likely to report more than 20 percent growth in profit for the quarter.

Earnings calendar for the week:

TCS

TCS, which is scheduled to report its first quarter earnings on July 13, is expected to report revenue growth in the range of 2.2-2.5 percent for the quarter due to slowdown in revenue and rupee appreciation (of 3.7 percent QoQ).Goldman Sachs said every 1 percent appreciation in rupee against the US dollar reduces its covered companies' FY18 EPS by 1.4-2.3 percent.

According to Deutsche Bank, the slower-than-expected pick-up in the banking and financial services vertical and continued weakness in the retail vertical will drive the modest June quarter revenue growth. Deal wins in the insurance vertical and strength in manufacturing, life sciences and healthcare, energy and utilities and travel and hospitality sectors can lift the outlook for the rest of FY18.

Infosys

IT bellwether Infosys, which will announce numbers on July 14, is likely to perform better than TCS in terms of revenue growth. Ambit expects revenue growth of 2.7 percent (organic constant currency QoQ) while Deutsche Bank sees 3 percent growth.

"While the company will show a significant improvement in operating margins, this is primarily on account of deferment of wage hikes by a quarter. The development may be viewed as an indication of revenue weakness in the June quarter. However, given lack of any more clarity, we expect normal seasonality to continue in revenue growth for Infosys," Deutsche said.

Monsoon

The June-September southwest monsoon is critical for the country's agriculture because a considerable part of the country's farmland is dependent on the rains for irrigation.The India Meteorological Department in its weekly weather report last Thursday said that the all-India cumulative seasonal rainfall from June 1 to July 5 stood at 217.3 mm as against normal rainfall of 206.7 mm, with a departure of +5 percent.

Macro Data

Apart from earnings, macro economic data (May IIP, June CPI & WPI) is also expected to be released during the week. The government will release industrial production data for May and inflation data based on consumer price index after market hours on July 12 while the data on inflation based on wholesale price index (WPI) for June will be announced on July 14.

"Our hopes from the above mentioned data are building high as improvement in economic scenarios could provide some legroom to RBI for interest rate cut in the coming monetary policy,.

Technical Outlook

As the Nifty crossed 9,600 level decisively and held it throughout the passing week after recent correction, experts feel the 9,700 level is crucial now."Only a decisive break and sustenance above the 9700-9709 levels (proves to be a very solid supply zone for the Nifty) could kick off the next leg of rally. Support is now upgraded around the 9600-9620 level,".

Derivatives

On Friday, maximum Call open interest (OI) of 40.78 lakh contracts stands at strike price 9,700 which will act as a crucial resistance level for the index in July series while maximum Put OI of 63.19 lakh contracts was seen at strike price 9,500 which will act as a crucial base for the index.

Last week, the market has observed a significant shift in open interest to 9800 Call option strike, which now holds 38.54 lakh contracts in open interest.

Singhania feels any close above 9700 mark may lead to huge short covering in Nifty 9700 call option strike as option writers would run for cover and this may also trigger technical traders to cover their short positions who had earlier shorted Nifty on account of bearish candlestick pattern.

Based on the aforementioned reasoning, a rally up to next resistance level of 9800 mark can be expected if Nifty closes above 9700, he said.

Stocks in focus

Coming Monday, Sun Pharma will react positively as the company and its subsidiary entered into settlements with certain plaintiffs in the Re Modafinil Antitrust Litigation matter currently pending in the US Court. The settlements extend to all claims brought by Apotex Corporation and the Retailer Purchaser Plaintiffs, the company said.

Fortis Healthcare will also open higher as Reserve Bank of India removed the company from FIIs/FPIs ban list.

Firstsource Solutions will also react to the news that the company has signed definitive agreements to sell a portion of its India domestic business to Vertex Customer Management India.

Corporate Action

Maan Aluminium (1:1) and Mahindra Holidays (1:2) will start trading ex-bonus from July 10 while HPCL (1:2) and Munjal Auto Industries (1:1) will go ex-bonus from July 11.

On July 12, Lypsa Gems & Jewellery (2:5)) will trade ex-bonus while BPCL (1:2), City Union Bank (1:10), GPT Infraprojects (1:1) and Larsen & Toubro (1:2) will start trading ex-bonus with effect from July 13.

he following stocks will start trading ex-dividend:

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Global Cues

China will release its inflation data based on consumer price index for June on July 10, followed by Europe's industrial production for May on July 12.US is expected to release its non-farm jobs report for June, industrial production data for May, retail sales for June and retail inflation for June on July 14. Japan will also announce its data on capacity utilisation and industrial production for May on the same day.

Last modified on Monday, 10 July 2017

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