Mumbai: The Nifty and Sensex broke out of a two-week range to hit record highs on Friday, after beaten-down tech stocks rose the most in almost three-and-a-half years on hopes that rate cuts in developed economies would increase software spends by companies located there. The outlook for equities remains bullish, with IT stocks set to join the rally with banking stocks after a year of underperformance.
The Nifty rose to a record high of 21,928.25, while the Sensex surged to a fresh life high of 72,720.96, before settling slightly lower. The Nifty and Sensex ended up 1.14% and 1.18% higher at 21,894.55 and 72,568.45.
The biggest contributors to the Nifty’s 247-point gain were Infosys that added 88.65 points or almost 36% of the index move, TCS (31.25 points), ICICI Bank (18.15 points), L&T (15.84 points) and Reliance Industries (15.34 points). Infosys and TCS alone accounted for almost half of Nifty’s Friday gains.
The rally in Infosys, TCS, TechM and LTIMindtree moved the sectoral Nifty IT needle by 5.14%, its highest since 15 July 2020, when it rose 5.24%.
The Nifty, as per option writers, could trade in a 21,800–22,300/22500 range next week, with the bias tilted to the upside .
“Large-caps will outperform, and IT and oil and gas led by RIL along with financials will push the Nifty up in the near term,” said Rajesh Palviya, SVP (technical & derivatives), Axis Securities.
The rally from Nifty’s 20 March 2023 low of 16,828.35 has been driven by strong mutual fund and FPI flows of ₹1.84 trillion and ₹1.71 trillion in the previous calendar year .
The outlook for equities remains strong, though returns are expected to moderate in 2024 as markets price in a tempering of inflation and likely policy continuity with an expected victory of Bharatiya Janata Party in the upcoming national elections.
“Returns from Indian equities are likely to be more moderate than in the recent past (20% Nifty rally in 2023),” notes Abakkus Asset Manager, which expects low to middle teen returns.
“Volatility and wild swings have and will continue to be a part of equity markets and story-based and momentum-based investing might look exciting, but will probably end sour,” Abakkus said in a report.
Risks to the downside emanate from persisting inflation which could make rate cuts by the RBI more challenging and keep the cost of money for corporates high and impact earnings.
Data released by the government on Friday evening showed IIP growth in November decelerating to an eight-month low of 2.4%, while retail inflation in December grew by 5.69%, the most in four months.
“Investors are hoping that likely rate cuts by the Fed later this year would improve the scenario for IT companies,” says Prashanth Tapse, senior VP (research), Mehta Equities.
JM Financial Institutional Securities analyst Abhishek Kumar maintained a Hold recommendation on both TCS and Infosys, setting price targets at ₹3,840 and ₹1,480, respectively.
The outlook for TCS includes a projected -1.1% quarter-on-quarter (q-o-q) dollar revenue growth, with expectations of 24bps expansion in EBIT (earnings before interest and taxes) margin led by lower sub-con expenses, better utilization and currency benefits. Similarly, for Infosys, a -1.1% q-o-q dollar revenue growth is anticipated, with a 30 bps q-o-q decline in Ebit margins by the two-month impact of wage increment in November.
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Published: 12 Jan 2024, 11:48 PM IST