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What made stocks reverse rally on Monday?

BSE Smallcap index fell just 0.39% on Monday, even as benchmark Sensex was down 1%.

, ETMarkets.com|
Last Updated: Jan 21, 2020, 08.46 AM IST
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NEW DELHI: Index heavyweights drove benchmark indices lower on Monday as higher valuations amid their failure to meet earnings estimates haunted investors.

Results of Reliance Industries and TCS and retail-focused banks such as HDFC Bank and Kotak Mahindra, missed Street estimates on one or several counts.

The deterioration in asset quality of retail-focused banks that are a measure of the health of the economy, is concerning, said analysts.

That answers why the Smallcap index fell just 0.39 per cent for the day, even as Sensex was down 1 per cent.

The 30-share index closed 0.99 per cent or 416 points lower at 41,529, while the 50-share Nifty closed 0.98 per cent or 122 points lower at 12,231.

For HDFC Bank, provisions, including those for bad loans and contingencies, jumped 37.6 per cent to Rs 3,043.6 crore in the December quarter from Rs 2,211.5 crore in the same quarter last year.

The bank’s retail growth moderated further to 14 per cent from 15 per cent in the September quarter. The stock fell 1.8 per cent to Rs 1,254.90 on BSE.

The bank reported its quarterly earnings on Saturday.

In case of Kotak Mahindra Bank, provisions and contingencies stood at Rs 444 crore for the quarter compared with Rs 407.93 crore in the September quarter. Provisions on a yearly basis towards advances increased 69 per cent over Rs 255.03 crore in the December quarter. This stock plunged 4.7 per cent to Rs 1,618.05.

“There is some rise in NPAs of these retail banks, considered the most efficient banks, which indicates that the economy is lagging,’ said G Chokkalingam, Founder and Managing Director of Equinomics Research.

Umesh Mehta, Head of Research at Samco Securities noted that even in the second quarter HDFC Bank’s Aditya Puri had warned of some slowdown in October-December.

“So, it was known. But the stock market has its own rhythm. Now suddenly, the market has realised that valuations are high, the government has limited room for sops and Donald Trump impeachment is something serious,” Mehta said.

Index heavyweights had led the rise in Sensex and Nifty in the last one year.

In case of Reliance Industries, analysts have cut FY20 estimates by 4-6 per cent on weakness in petchem business. CLSA has maintained ‘buy’ rating on the stock with a target of Rs 2,010. The brokerage cut EPS target estimate for FY20 by 6 per cent. JP Morgan has also cut FY20-22 EPS estimates for the firm by 4-5 per cent.

“We cut our FY20-21-22 Ebitda estimates by 4-2-1 per cent, factoring in weaker petchem margins although due to lower capex run-rate and strong Retail and Jio numbers retain our target price of Rs1,740,” Emkay Global said.

The stock fell 3.08 per cent to Rs 1,532.

In case of TCS as well, the December quarter numbers failed to enthuse investors.

“We continue to believe that TCS’ trinity of ‘growth’- scale-durability is challenged in the near to medium term. While TCS’ supply-side metrics continue to be industry-leading (margins, attrition, offshore leverage), risks on the demand side with macros (Brexit) and client specifics across core verticals remain,” said HDFC Securities.

TCS fell 2.16 per cent to Rs 2,170.25.

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