The Indian markets are approaching their second-quarter earnings season during a particularly delicate period filled with uncertainties. As we find ourselves just days away from recording the quarterly results for various companies, a number of factors are poised to influence market performance.

Given the current landscape, the forthcoming earnings reports will be closely scrutinised, as they may provide insights into the overall health of the economy and the resilience of individual businesses amidst these challenges. To understand this better, Benzinga India sat down with Ajit Mishra, SVP, Research at Religare Broking.

“Following the recent market decline, several key factors will influence market sentiment, including the Reserve Bank Of India‘s upcoming monetary policy, ongoing global events, and Q2FY24 earnings reports,” Mishra told Benzinga.

“Investors should closely watch several key factors ahead of the Q2 results. The RBI Monetary Policy Committee (MPC) meeting on October 9 will be crucial for determining interest rates, with any announcements likely to impact market sentiment, particularly in the banking and real estate sectors. Meanwhile, the ongoing Iran-Israel conflict adds to geopolitical risks that could lead to global market volatility and influence oil prices. Additionally, the results of the Jammu and Haryana assembly elections and trends in foreign institutional investments will also be areas of focus for investors,” he said.

“Investors are encouraged to focus on accumulating fundamentally strong stocks during downturns, particularly those with robust balance sheets and growth potential, to weather market fluctuations effectively,” Mishra advised.

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Key Sectors In Focus

Mishra said that two of the sectors he will watch out for are information technology and Non-Banking Financial Institutions (NBFC).

Information Technology

“The IT sector is anticipated to show signs of recovery, especially with the recent start of a rate cut cycle. Large IT firms may see steady demand from the BFSI sector, and demand for cloud, digital transformation, and AI services continue to drive deal wins. Investors should focus on guidance and deal pipelines for the coming quarters, as these factors will be critical in assessing future growth prospects amidst global economic uncertainties. We expect Q2 FY2025 to be a pivotal quarter for a turnaround in this sector, with companies like Tata Consultancy Services (TCS) and Infosys leading the charge.”

The performance of TCS and Infosys will remain in focus as the former is a bellwether for the IT sector and the latter is likely to provide insights into the sector’s recovery trajectory.

NBFC

“NBFCs are expected to gain from easing monetary policies, which can boost lending and investment activities. As banks pivot towards attracting deposits, NBFCs have the opportunity to capitalise on this shift, potentially leading to significantly higher growth. Additionally, anticipated rate cuts will further enhance their profit margins by reducing borrowing costs. NBFCs like Bajaj Finance, L&T Finance and Manappuram Finance are likely to report strong performances driven by increased loan demand.”

New Age Tech Stocks

With Ola Electric debuting on the stock market in August and Swiggy, a competitor of Zomato, gearing up to enter the public market soon, we seized the chance to ask Mishra for his thoughts on the performance of these new-age tech stocks. Many of these companies have seen substantial growth in 2024. Zomato, for instance, has delivered returns exceeding 100% since its listing in July 2021. Given that the valuations of most of these stocks remain elevated, we were especially keen to hear his perspective on investing in them.

“India’s new-age tech stocks offer significant growth potential, fuelled by digitalisation, rising internet penetration, and scalable business models. However, they have faced hurdles, particularly due to high valuations and a shift in investor sentiment towards profitability rather than just revenue growth.

Recently, many of these companies have pivoted towards generating positive cash flow and achieving profitability, with several reporting strong earnings in the latest quarter. Despite this, investors should remain cautious, as not all companies will sustain consistent performance, and many still have elevated valuations. Selective stock picking is crucial in this dynamic environment,” Mishra said.

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