Dalal Street Corner: Weak IT earnings force market to end 3-day rally; what should investors do on Tuesday?

The Indian market ended on a flattish note on Monday after rallying three per cent in the week ended on July 8. Putting a halt to the three-day rally amid weak IT giants TCS Q1 FY23 results, the benchmark indices closed with marginal cuts as Nifty 50 declined 0.03% and Sensex dropped 0.16% to settle at 16,216 and 54,395 respectively.  

Shares of the country's largest software exporter ended with nearly five per cent cut after the IT behemoth reported a 5.2 per cent rise in the June quarter net profit to Rs 9,478 crore, restricted by the impact of annual wage hikes and promotions that took operating profit margins to multi-quarter lows.  

Not just that but the correction in the IT stock dragged the entire Nifty IT index, which dropped a little over three per cent on Monday's closing. Lead by TCS, Infosys, Wipro, Tech Mahindra and HCL Tech dragged the index too. 

However, Nifty Auto, Oil & Gas, Bank and Realty helped the market trim most of the losses in the closing hour despite weak opening.  

Meanwhile, outperforming the benchmarks, Nifty Midcap and Smallcap ended with nearly one per cent gains each.   

Earlier, Foreign Institutional Investors (FIIs) trimmed their selling spree as they offloaded shares to the tune of just Rs 109.31 crore on Friday. The FIIs have remained net sellers so far this month by selling Rs 4,543.12 as on July 8.  

The market breadth remained positive on Monday with 2096 stocks advancing and 1328 declining on the BSE.  

As the market snapped a three-day rally to end in the red, here is what experts make of Monday's trading session.  

Rupak De, Senior Technical Analyst at LKP Securities  

The benchmark Nifty remained sideways during the session. On the daily timeframe, the index has sustained above its near-term moving average. The momentum oscillator RSI maintains its bullish crossover. The short-term trend is likely to remain positive as long as it holds above 16000. On the higher end, resistance is visible at 16300. 

Vinod Nair, Head of Research at Geojit Financial Services 

As the domestic market turned its focus towards quarterly results, the weak start of IT earnings wounded sentiments, forcing benchmark indices to open on a weak note. However, with support from banking, metal and energy stocks, the domestic market managed to pare its losses to close flattish. India’s June inflation data, which is due for tomorrow, is expected to remain in line with May’s inflation rate of 7.04%. Meanwhile, the US inflation data due on Wednesday is expected to show a further increase from its current peak level of 8.6% during May. 

Gaurav Ratnaparkhi, Head of Technical Research, Sharekhan by BNP Paribas  

The Nifty in the last week had reached a crucial junction formed by its daily upper Bollinger Band, upper end of a falling channel on the daily chart as well as upper end of a rising channel on the hourly chart. In terms of the Fibonacci retracement, it did little more than 61.8% of the June fall. The index continued to trade near these key parameters on July 11. The hourly Bollinger Bands have started contraction. Thus, the Nifty is expected to witness a brief consolidation near 16000-16275. As long as the Nifty stays above the 16000 mark, the short-term bounce can extend towards 16500. However, a breach of 16000 will turn the table in favor of the bears. 

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services 

"There are many significant data points which will influence equity markets in the short run. The US jobs data showed 372000 job creation in June, indicating a strong economy and an increasing possibility of the Fed successfully engineering a soft landing of the US economy. 
The sharp decline in prices of commodities, particularly of crude, metals, wheat and edible oil, augurs well for inflation management in India.  

The selling exhaustion from FIIs last week is another positive for markets in the short term. The market texture reflects a change in investment strategy from sell on rallies in June to buy on dips in July. Segments like capital goods, autos and high-quality financials indicate strength.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult their investment advisers before making any financial decision.)