The market is zooming past records with a frenzy, taking along lesser-known stocks in its fold this time. The Sensex and Nifty have set new lifetime highs. Sentiments are very bullish and so is media. Headlines appearing across media are all euphoric, but silently somewhere super-rich investors are ploughing bull market profits to buying stressed assets like Binani Cement.
In the midst of all these excitements, there is another silent killer eating away the power of the bulls; this termite is nothing but rising prices of petrol and diesel, which are at multi-year peak levels now. If fuel prices continue to rise, soon the empire of bulls can come crushing down.
Events of the Week
The earnings season just kicked off. Big players from the IT sector, such as Infosys and HCL Tech reported quarterly PAT growth of 36 per cent and 0.58 per cent, respectively. ITC and Hindustan Unilever reported 17 per cent and 28 per cent PAT growth, respectively, but this was largely on account of low base due to demonetisation effect last year.
Private banking players, such as HDFC Bank, Yes Bank and Federal Bank, reported PAT growth in excess of 20 per cent, maintaining their NPAs, which is a sign of revival on the horizon.
India's biggest telecom company, Bharti Airtel, reported a 29 per cent drop in profit for the fifth straight quarter. Growing competition among telecom companies seems to have adversely impacted profits. but not the stock prices, courtesy strong bull market.
The market has crossed the upper channel indicating the likelihood of a throw-over occurring. During an euphoric phase, the market can at times cross the channel, but it will eventually return. However such a runaway rally is not supported by volumes, which mean a correction is on the cards.
Friday's record high has registered lowest volume of the month. Traders should tightly protect their long positions by keeping daily low as trailing stop loss.
Expectation from the Week
Results season is beginning to accelerate, but the way the market is responding to the numbers from commoditised/cyclical companies is a warning bell.
Thirumalai Chemicals reported 240 per cent rise in Q3 profits, while Bhansali Engineering & Polymers reported 844 per cent rise in its profits, but the stock prices responded negatively with heavy volumes on the down side. Sell on good numbers seems to be current mantra of the market.
However it would be early to draw conclusions because the earnings season has just started. Investors are advised caution, especially in the cyclical and commoditised businesses, the numbers might look good optically, but investors should be cautious and not jump into the quarterly numbers bandwagon thinking that such profit growth rate will sustain. Investors should be very selective at this juncture and invest only in quality companies.
Nifty50 ended the week at 10,894, up 2 per cent from previous week.