Earnings season off to tepid start! Here’s how to navigate market now

So far in April, DIIs have absorbed less than 60 per cent of the FII sell off. The DII absorption for the last two months was close to 92 per cent. Further, even between October and February, the combined investments by DIIs and retail investors surpassed the net sales by FIIs. Now as signs emerging that incremental retail participation in the short term at least may not be as buoyant, it remains to be seen if retail participation can hold up.

Over the past two years, there has been a high influx of retail investors particularly stemming from the quick returns that equities have generated. However, since the market has put up a lackluster performance during the previous six months, retail investors may feel less motivated to trade with the same frequency.

Even with the complete opening up of the economy, investing in equities actively may be pushed to the sidelines for quite a of them. Further, the rising inflation can likely reduce retail participants’ disposable income, and thus investable funds. Furthermore, with SEBI’s embargo on NFOs till the end of June, incremental investments over and above SIPs may be limited. So taking all of this into account and the fact that retail investors have a tendency to be loss averse, it will be interesting to see if they can survive a protracted period of poor returns.

Chances are that considering the fear gauge and volatility in the markets, they may delay making new investments until a glimmer of hope appears.

Event of the Week:

The kick start of the result season failed to appease market sentiments as most of the positives even on the earnings front are completely priced in the current valuations. What is being observed is that stock price reactions are magnified for every hit or miss vis-a-vis market expectations.

Basis the IT majors who reported their results so far, the numbers are not as disappointing as the market has perceived them to be. The management commentary suggests that there are more supply side issues that are eating into the margins and the overall outlook still remains optimistic as the underlying demand is robust.

However, the stock price movements hint that the market is now penciling in a de-rating of these stocks considering the margin misses and rich valuations. This can also partly be attributed to the tech carnage we have been witnessing globally. Considering that the IT sector’s outlook continues to be promising, investors can now look at companies where risk reward has become favorable for initiating long term investments.

Technical Outlook

While Nifty50 index ended the week on a negative note, it quickly re-gained most of the loss after re-testing the crucial support of 16,800 mid-week. Nifty smallcap and midcap indices are outperforming the benchmark indices, which is a bullish sign. While the index is now constrained within a broad range of 16,800 to 18,100 levels, we advise that a mild bullish outlook be maintained going ahead. Since 16,800 has emerged as a strong support, traders are advised to remain watchful, as a decisive break below it can lead to weakness in the short term.

ET CONTRIBUTORS

Expectations of the week:

The quarterly results of the companies will continue to occupy center stage and will be the key factor steering the market’s direction. Further due to the monthly expiry, volatility will be on the higher side. The market will also keenly monitor the war situation, the movement in treasury yields and in the dollar index. Further, given that there has been a resurgence of Covid cases in some regions of India, the pace of infection spread will also be tracked. Taking these factors into account, market movements will be choppy.

Investors are therefore advised to tread with caution. Nifty closed the week at 17,171.95, down by 1.74 per cent.