Weak Q4, rising COVID cases: Key factors behind today's market fall

After nine days of the incessant rally on Dalal Street, bears made a comeback with elan on April 17 amid weak cues both on global as well as domestic fronts. In the early morning trade, the benchmark S&P BSE Sensex was trading 860 points, or 1.42 per cent lower at 59,571.35 levels while the 50-share Nifty traded at 17,604.05, down 224 points or 1.26 per cent. 

Let's take a look at the key factors that are dragging the market lower today - 

Bluechips disappoint with Q4 nos: Although the street was pencilling in a weak set of numbers by IT services firms, the numbers reported by bellwethers Infosys and TCS were below the analysts' expectations, thus unnerving the market participants. Infosys hit a 52-week low while TCS, among other IT stocks, too, were trading deep in the red.

That apart, HDFC Bank also failed to enthuse investors with its March quarter earnings. Axis Securities, in its post-earnings note, says the rapid rise in operational expenditure for HDFC Bank is indicative of the bank needing to work harder to achieve deposit growth. 

"HDFCB’s intention to add about 1500 branches per year is not new but its sudden fructification in 4Q is a stark reminder. Regardless of the generic narrative about the advent of digital strategy, there is no substitute for branch footprint when it comes to delivering deposit growth from an elevated base. High sequential operational expenditure (opex) growth was driven not only by branch openings but also by personnel addition. The bank would like to run cost to income ratio at 42 per cent, which may fluctuate on a quarterly basis," the brokerage said.

It has downgraded the stock to 'Add' from 'Buy' with a target price of Rs 2,025. The brokerage values the standalone bank at 2.9x FY24 P/BV for an FY24E/25E RoE profile of 13.6/14.3 per cent. "We assign a value of Rs 227 per share to the subsidiaries, on a SOTP basis," it said. SOTP stands for sum-of-the-parts analysis. RoE is an acronym for return on equity.

Covid cases on the rise: Another major reason behind the market's fall was the sharp rise in COVID cases in Delhi, Kerala, and Uttar Pradesh. India recorded 9,111 fresh cases of coronavirus in 24 hours. With this, the number of active cases increased to 60,313. Besides, the death toll has increased to 5,30,929. The daily positivity rate has been recorded at 8.40 per cent while the weekly positivity rate has been pegged at 2.89 per cent. The total tally of Covid cases stands at 60,313, according to the health ministry.

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Global cues: Asian stocks traded cautiously in the morning trade on Monday as US earnings season gets into full swing, while a raft of Chinese data will offer insight into how the world's second-largest economy is recovering. Markets have also seen a mood shift on the outlook for U.S. interest rates, with CME futures implying an 83 per cent chance the Federal Reserve will hike by a quarter point to 5.0-5.25 per cent in May, Reuters reported. MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.3 per cent, while Japan's Nikkei was trading flat.

Profit-booking: After rising for nine straight sessions, the market took a breather as investors booked profits in recent gainers and outperformed counters. 

"FPI buying and short covering have been driving the current rally. Global market construct has also been positive. This positive market construct is likely to change to a slightly negative construct in the near term,  driven by the correction in IT stocks. The worse-than-expected Q4 results from Infosys with only 4-7 per cent revenue growth for FY24 will drag down IT stocks impacting the Nifty.  Sectoral rotation from IT to performing sectors like capital goods, pharma and financials will gather momentum," said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

ALSO READ | Infosys shares tank to 52-week low after IT major's Q4 results; Anil Singhvi sees support at Rs 1,200-1,245

Weak global outlook: A Bloomberg report last week noted that it’s getting hard to be an optimist about the world economy. The report added that China’s reopening is proving solid but unspectacular. "Talk of a US recession has resurfaced with vigour. To this unsettling picture, Singapore added its own warning Friday. It’s been a run of wins lately — for the bumpy-landing camp," it said. The Singapore central bank last week paused its rate hike streak and gave a sobering commentary on global and domestic prospects. The central bank further said that the country’s gross domestic product is expected to “moderate significantly” this year and that prospects for growth this year have “dimmed." Besides, output cuts announced by OPEC+ producers risk exacerbating an oil supply deficit expected in the second half of the year and could hurt consumers and global economic recovery, Reuters reported quoting the International Energy Agency (IEA).

18,000 key resistance level: After oscillating between the positive and negative territories, the Nifty finally ended in the green on Thursday (April 13). Commenting on it, Rupak De, Senior Technical Analyst at LKP Securities, had said, "The critical moving averages are sitting comfortably below the current index value. The trend is likely to remain positive as long as it stays above 17,700. On the higher end, 18,000 will likely act as a crucial resistance."