The Nifty almost reached the 10,000 mark during the week, boosted by Wipro's share buyback offer and Reliance Industries topping estimates with its quarterly results, followed by the announcement of a virtually free feature phone for subscribers of its telecom arm. Wipro was the top index gainer, followed by Zee Entertainment and HCL Tech. Bharti Airtel was the top loser due to the Jio factor.
HUL reported better-than-expected results with revenue and PAT growing by 5 percent and 15 percent respectively. Sales volume was flat due to destocking by various trade channels prior to GST implementation. The management said the company was able to smoothly transition to GST and aided their distributors as well. However, the story is different for Britannia and Tata Tea – they have stopped supplies to distributors in Kerala who are seeking to protect their margins after the rollout of GST.
Reliance shares were up after it reported better-than-estimated margins and announced a 1:1 bonus issue. At the company's AGM, Chairman Mukesh Ambani announced the launch of the JioPhone, a 4G-enabled smartphone. He expects his telecom network to cover 99 percent of the country's population in the next one year. Jio has added seven users per second every day since its launch, taking its tally to 125 million customers. Data consumption in India has grown from 200 million GB per month to 1.2 billion GB per month after Jio launched its operations last year. The JioPhone offer will further create margin pressure for competitors as the average revenue per user is expected to go down further. The phone's ability to be connected to a TV is bad news for DTH and cable operators.
ITC was responsible for a large fall in the index after the government hiked taxes on cigarettes. Several brokerages were quick to downgrade the stock, leading to further selling pressure. PSU banks were also in focus after the finance minister said the government is working on a capital infusion strategy for public sector lenders. Wipro was also in the limelight after it announced a share buyback plan worth 110 billion rupees. The buyback strategy by top companies is a worrying trend when seen in the light of abysmal asset creation and low bank credit growth in India. This indicates lack of opportunities for gainful deployment of capital.
For the coming week, markets are expected to be volatile ahead of derivative contracts expiry on Thursday. As the earnings season picks up steam, prominent companies like Ambuja Cements, HDFC Bank, Zee Entertainment, Asian Paints, Axis Bank, Bharti Airtel, Yes Bank, Dr Reddy's, HCL Technologies, ICICI Bank, ITC, Maruti Suzuki and Larsen & Toubro will report their numbers during the week.
Globally, Japan and U.S manufacturing PMI data for July will be unveiled on Monday, while the U.S. Federal Reserve will announce its interest rate decision on Wednesday. The general consensus is that the Fed will keep rates unchanged, especially after chair Janet Yellen said last week that inflation levels merited further observation.
With the Nifty hovering near the 10,000 mark, a lot of investors may expect selling once the index crosses the psychologically important level. This means we could witness pre-emptive selling. The Nifty may be able to reach 10K on a day when there is a gap-up opening, but sustaining it could be a challenge.
Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant.