Technology Stocks Shake, Rattle and Roll
The needle hasn’t moved much in the stock market since our last editorial. The markets have been seen see-sawing in the band and now this consolidation is becoming too stretched on a time-wise basis. Though the Nifty has been swaying in a broad range, the volatility was fierce in the last one week. And testimony of this is that in three out of the last five trading sessions, Nifty’s daily range was above the 10-day average with Wednesday’s range being the highest of 254 points. One interesting observation is that the price action of July 28 resembles the price action that was seen on June 18. The only difference is that at that point the index had breached the 20 DMA, which was later reclaimed during the latter half of the session while in the current case instead of 20 DMA it is 50 DMA.
So now the important question is about what triggered volatility in the Indian markets? The most prominent reason that made this happen in the domestic market is the sell-off seen among the Asian peers and rising concerns over the Delta variant of the corona virus. On a week-to-date basis the Nifty has outperformed some of the Asian peers while Asian peers like Hong Kong’s Hang Seng index and China’s Shanghai Composite index witnessed a sharp plunge as they were down by 5.5 and 4.5 per cent, respectively, during the same period. Interestingly, the contrasting move was witnessed in technology stocks of the Indian markets and Hong Kong and China’s market.
The new-age digital Indian internet company Zomato witnessed good demand despite the chorus of high valuation concerns. The stock made a high of Rs 147.80 during the week. On the other hand, Chinese big technology companies saw a severe fall in their stock prices after China’s regulatory crackdown. This clamping down by China on its technology industry resulted into a sharp fall in many of the big technology stocks. New Oriental Education and Technology, which provides private educational services in China, has plunged nearly 65 per cent in the past five days while the stock of Meituan was down by nearly 20 per cent and Tencent Holdings was also down by 10.5 per cent in the past five days.
Interestingly, as the saying goes that one man’s loss is another man’s gain, it holds true in the current scenario as it is believed that India shall gain from this situation. With institutional investors rattled by this sudden and shocking move by China’s authorities, they would think of shifting from Chinese technology stocks to Indian technology stocks. Not only these institutional investors but also venture capitalists and private equity funds could come to India, which could be a bigger opportunity for Indian technology companies. However, one way to gauge whether the inflows are coming or not in the listed space is to check the FIIs flow or net buying figure. As of now there is no signal of any big flow of money but hopes are certainly high and there is a strong feeling that the flow would soon start to pour into the Indian markets.
Another important global event which everyone was looking forward to was the US Federal Reserve meeting. The US Federal Reserve maintained status quo on rates, which was very much on expected lines. However, all eyes were on the statement of the Federal Reserve which reiterated that it would provide advance notice before making any changes to the asset purchase plan; hence, putting fear of tapering to rest for the time being. In the domestic market, the earning season has picked up pace. After disappointment from HDFC Bank due to ballooning concerns related to asset quality, all eyes were on ICICI Bank. The net profit of the private sector bank soared nearly 78 per cent YoY and the bank’s net interest margin (NIM) came at a 26-quarter high of 3.89 per cent against 3.69 per cent in Q1FY21.
The net NPA ratio was 1.16 per cent as against 1.14 per cent in the quarter ended March 31, 2021. As a result, the stock has recorded a fresh high and gained nearly 5 per cent in the last five trading sessions. This again reflects our ideology that this market is a stock-specific one where good earnings are being applauded and rewarded. Hence, keep a close eye on earning reports and act accordingly. Going ahead, market participants should watch out for automotive sales numbers, earning season and also the Reserve Bank of India (RBI) policy which is scheduled on August 5. Just like the US Federal Reserve has maintained status quo on rates, the RBI too is expected to keep rates unchanged.
