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Even though the 50-scrip Nifty rose for the sixth straight session and closed at lifetime high, it formed an indecisive Doji on the daily chart, signalling weakness and some profit booking ahead.
Analysts said Nifty may witness further bounce if it manages to hold above this level. Can the index manage to take out the 15,300 level this week? Or will we see some more consolidation?
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Mumbai: Shares of drug makers and healthcare companies were among the top performers on Wednesday boosted by the Reserve Bank of India’s move to provide an on-tap liquidity window of Rs 50,000 crore for the sector to fight Covid-19. Analysts said the announcement could push investors to raise their stakes in defensive sectors like pharma and technology as the second wave of the pandemic has reduced their appetite for cyclicals.
The Nifty Pharma index rallied 4 per cent on Wednesday as against the 1 per cent gains in the Nifty.
Sun Pharma, Lupin, Cadila Healthcare, Aurobindo and Torrent Pharma among others rallied more than 5 per cent.
“And therefore the possibility of an earnings downgrade as we move forward is quite high. Some of the banks like HDFC Bank and ICICI have already made some provisions for the second Covid wave and we expect more will downgrade their earnings if we fail to contain the pandemic quickly,” he said.
Cuts in earnings expectations make the markets look expensively valued. Analysts had justified steep valuations of shares of several companies on the back of cheerful earnings estimates. If expectations are lowered, valuations will become even richer, making stocks vulnerable to sharp corrections.
The estimated price to earnings (PE) ratio, a popular valuation measure, stood at 19.95 times against the 10-year average of 17.66. MSCI Emerging Markets’ estimated PE is 15.20 times compared with its 10-year average of 12.38.