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The Market Podcast: GST Council meet, TCS’ Q3 results, and the allure of midcaps in 2019

Q: So let’s jump to the topic directly and start with the global and domestic cues that paved the direction for the indices this week.

A: Absolutely, it was an action packed week across the globe as well as for Indian markets. Regarding the US-China meet – I would say ‘All well that ends well’. Why I say that is because representatives of both the nation in separate statements said that the meet concluded with some positive signals.

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All we can say right now is that China and the United States made progress over structural issues such as forced technology transfers and intellectual property rights. But, no clear verdict as such.

Remember, if both sides are unable to secure a comprehensive trade agreement by March 2, US President plans to raise tariffs to 25 percent from 10 percent on $200 billion worth of Chinese imports.

Another big factor which bagged investor attention was US Fed minutes. US markets rallied and the rub off effect was seen in India markets as well after US Fed minutes signaled that Fed will be patient while increasing interest rate increase in 2019.

Back home, the GST Council, in the 32nd meeting increased the threshold exemption limit for businesses with a turnover of Rs 20 lakh for northeastern states and Rs 40 lakh for rest of the country.

Q: This week also marked the beginning of the third quarter earnings season, and as usual TCS and Infosys kickstarted it. So since recovery in corporate results is being keenly watched by the Street, what were the highlights so far and what are you picking up in terms of expectations?

A: We kick started the earnings season in the week gone by and the big advantage is that nobody is expecting this to be a blockbuster quarter. Hence, even a small outperformance could result in a big rally.

Two big names —  TCS and Infosys — reported their results for the quarter ended December in the week gone by.

TCS, India’s largest IT firm by revenue reported a 24.1 percent rise in YoY profit at Rs 8,105 crore for the December quarter. However, sequentially it grew by 2.6 percent. However, margins were a miss and operating performance for the quarter was weak. Most brokerage firms such as CLSA and Macquarie retained their rating but slashed target prices.

Jefferies maintain a buy rating but slashed target to Rs 2,230 from Rs 2,300 earlier. Citi also slashed its target to Rs 1,785

From the banking space IndusInd Bank reported a marginal 5.2 percent rise in net profit to Rs 985.03 crore for the third quarter ended December 31, 2018. Even though the stock fell after Q3 results, most brokerage firms maintain their rating while some slashed their target price.

Q: While this week is done and dusted with, what should the investors watch out for in the coming weeks?

A: Well, macro data as well as earnings will dictate the trend for the markets in the coming week. As many as 68 companies on the BSE will declare their results for the December quarter this week starting from 14 January – 18 January.

Important results to track include names like

14 January: Indiabulls Ventures, ICICI Securities

15 January: Den Networks, KPIT Technologies, Trident,

16 January: DCB Bank, HT Media, MindTree,

17 January: Federal Bank, HUL, L&T Tech Services, Rallis India

18 January: Atul, L&T Infotech, NIIT Technologies,

19 January: HDFC Bank

In the coming week, markets will react to CPI and WPI data which are scheduled to be out on Monday, and Balance of Trade will be out on Tuesday, 15 January.

Q: Kshitij, you talk to a lot of experts and markets stalwarts. Any contrary view that you have picked up for 2019?

A: Yes, now that we are talking. Most experts feel that midcaps will bounce back in 2019. After burning their fingers in the mid and small-cap space in 2018, most retail investors seem to be hesitant or reluctant to put their money in the broader market now.

However, experts feel selling pressure in the mid-cap space seems to be bottoming and we could be heading for a revival. Midcaps are now trading at 8 percent discount to largecaps, which is lower than long-term averages. This sharp underperformance and under ownership could well result in revival in the mid-cap space.

Elara Capital is of the view that midcaps are likely to significantly outperform largecaps this year due to the following reasons: a) Valuation comfort, b) Easing cost pressure due to softer crude oil prices to bump up margin and c) earnings growth.