Mkt may face earnings disappointment in October: Analysts

With almost about every analyst in the stock market saying valuations were looking expensive and that the rally’s juice could fizzle out soon, the indices continue their march. As we head into October, the all important earnings season for the July-September quarter unravels at the end of first week. If the current rally is anything to go by, the market could be factoring in good corporate earnings. What happens next?

“Before the earnings season, the Nifty could head towards 5,100-5,150-5,200 levels but once we are into the earnings season, I clearly see some disappointments,” said Ambareesh Baliga of Karvy Stock Broking. “We feel that somewhere closer to around 5,200 the markets should top out.”
Investment Advisor SP Tulsian said the Sensex could stay in a 16,000-17,500 range. Marking out the top as 17,000-18,000 — “which could be reached due to the huge liquidity inflow,” he said — Tulsian one could expect a correction if such a top was reached, where the bottom could be 15,000.

Sectors you could play during earnings

Tulsian said one could play for the sugar, automobiles and private sector banking. “These three will give the direction to the market because we have seen huge activity taking place in all these three sectors in the last one month or so,” he said.
Bharti: The company’s stock, which rose 4% after the proposed deal with MTN fell out, could still face pressure ahead, said Baliga. “This (MTN news) was the trigger for this stock to move up because it had underperformed in the recent past. However, for telecom going ahead, pressures as far as margins are concerned continue.”

Auto stocks: Stocks of auto companies, which have continued to post impressive sales figures month after month may be in for some disappointment, cautioned Baliga. “The only question is whether they can continue beating their own records, I doubt. Over the next two-three months, they could see some amount of slowing down as far as numbers are concerned. I think the expectations would exceed the results.”

Midcap IT: “I think midcap IT is doing some catching up because the largecaps have moved quite a lot. So it’s just the catching-up game happening right now. Overall, we find most of the IT stocks quite expensive, we were recommending these stocks six-eight months back but at this point of time, we are asking people to book out,” said Baliga.

Oil India: Baliga was of the view that investors should move out of Oil India at Rs 1,150 — the stock is trading at the same price as ONGC. “At these levels, one should book profits because there has to be a discount [in Oil India with regard] to ONGC and I don’t see ONGC moving up to Rs 1,300-1,400 levels in a hurry.”

Oil marketing companies: Commenting on recent sluggish behaviour of oil marketing companies (OMCs), Tulsian said, “The stock movement of OMCs is directly linked to crude price behaviour.” He added, “Crude has gone up from USD 67 per barrel to USD 70 per barrel. So, maybe investors’ focus has shifted more on the other stocks like ONGC and Oil India.”