Business Standard

Volume IconWhat's ahead for the defeated IT, banks, realty and metals?

Amid talks of an impending recession, select pockets in the market have been hit the hardest and have entered the bear zone. Find out the fundamental and technical outlook for these sectors

ImageHarshita Singh New Delhi
Investors’ appetite for risk assets has taken a hit as bond yields have hardened globally following the US Federal Reserve’s decision to aggressively tighten monetary policy

Investors’ appetite for risk assets has taken a hit as bond yields have hardened globally following the US Federal Reserve’s decision to aggressively tighten monetary policy. (Illustration: Binay Sinha)

The Sensex and Nifty benchmarks have corrected 13% and 15%, respectively, from their all-time highs of 2021. Some select sectors that have borne the maximum brunt of this correction are IT, banks, metals and realty.

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Even though it appeared that the worst was behind as Covid-19 risks subside, the geo-political crisis has sprung up new challenges that continue to drive investors away from these sectors.
 
The BSE IT, Bankex, Metals and Realty indices have entered the bear zone after two years since 2020, cracking 20-30 per cent so far from their record highs that were hit between October 2021 and January this year.

Elevated commodity prices, an accelerated rise in interest rates, and the onset of liquidity tightening have weighed significantly on these sectors, leading to their sharp underperformance.
The metal industry, for instance, has been marred by high costs as prices of key inputs touched record highs this year on supply disruptions.
 
Even though, the prices of ferrous and non-ferrous metals have begun softening on demand concerns, the outlook for the sector remains weak, analysts say.
 
According to Edelweiss Securities “Weak demand due to the lockdowns in China is now starting to weigh on prices. Hence, we believe that despite supply shock, demand could soften materially, both hurting metal prices and demand” 

JP Morgan, meanwhile, has downgraded the Indian IT sector to underweight cutting target multiples by 10-20% across the pack.
 
Edelweiss Securities remains underweight on the real-estate sector that has long benefitted from high demand spurred by low-rates.
However, it believes that rising rates, along with slowing growth could now weigh on investor returns. Despite the sharp 
In the financial space, experts say that growth in pre-provision operating profits would shape returns in the sector from now on instead of reduction in credit costs.
Hence, analysts at Edelweiss Securities prefer private banks over PSUs, as it believes these players tend to score well on the pre-provision profitability front in a liquidity tightening scenario.
 
On the other hand, they add, rising interest rates will likely be challenging for NBFCs especially, as cost of funds will see an increase.
Against this backdrop, Business Standard’s Avdhut Bagkar finds out what technical charts indicate for these underperforming sectors:
 
According to Avdhut Bagkar of Business Standard,Nifty Bank well protected by 100-WMA. Though Nifty metal and IT remain a risky play, Bagkar says Nifty metal needs to cross 200-DMA. Nifty IT index has support of 100-WMA, he says.
 
Market action will be stock specific today as the Q4 corporate earnings season enters its last leg. BHEL, Zomato, JK Cement, PowerGrid, Shree Cement, Divis Lab, Birla Soft, Ramco Cements and SAIL are among those companies that will be on investors’ radar.
Besides, crucial events lined up for this week include Delivery’s likely market debut on Tuesday, and the monthly F&O expiry on Thursday.

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First Published: May 23 2022 | 7:00 AM IST

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