Equity markets took a breather on Friday, with both the Sensex and Nifty closing in the red after reaching record highs earlier in the week. Some profit booking was seen in some counters, which dragged the markets lower on Friday.
The BSE Sensex plunged 278 points at one point before recovering. It still closed 73 points or 0.2 per cent lower at 32,309.88 points. The NSE Nifty 50 index closed just 6 points or 0.1 per cent lower at 10,014.50.
For the week, the Sensex closed up 0.9 per cent and the Nifty rose 1 per cent. Strong global sentiments and the US Federal Reserve taking a dovish view; it kept interest rates on hold and signalled a gradual hike ahead, also helped boost investor mood.
On Friday, however, pharma stocks were hit particularly hard. Most brokerages have been bearish on the sector due to various regulatory headwinds and companies like Dr Reddy's saw a sharp sell-off on disappointing results. The stock closed more than 6 per cent lower after first quarter net profit halved. Among other pharma stocks, Lupin tumbled 4.3 per cent and Sun Pharma was also down close to 4 per cent.
Elsewhere, ICICI Bank fell 3.6 per cent as the street was disappointed with the country's largest private sector lender reporting an 8 per cent decline in quarterly profit.
Hero MotoCorp, Larsen and Toubro, Axis Bank, Coal India, Tata Steel and Hindustan Unilever were among the other major losers.
On the other hand, mortgage lender HDFC rose more than 3 per cent to a new record high in intra-day trade after a few brokerages raised their target price on the stock.
Driven by strong domestic and foreign institutional investors flows, India's equity markets have been on a roll this year. The Sensex has surged 21 per cent since the end of December 2016. On Thursday, the Sensex touched a fresh peak of 32,672.66. The Nifty hit a new high of 10,114.85.
While some analysts are worried over the valuations, there may unlikely to be a major correction as the macro economy reamains strong, political environment remains extremely stable and a wider corporate earnings recovery is expected in the second half of this year.
"Markets run on expectations and the liquidity too is amazing. But earnings have to ultimately catch up," Sudip Bandyopadhyay, chairman of Inditrade Capital told THE WEEK.
Private sector investments not picking up yet and the non-performing assets at public sector banks remains a concern for Bandyopadhyay. He remains positive on consumer goods, mining companies, non-banking finance companies and cement firms. Some of the mid-tier software services companies, which are focusing on new digital technologies, are also expected to do well, according to Bandyopadhyay, although, he feels the overall IT sector may not see huge growth rates in the future, like the way they did in the past.
When asked if one should continue to invest in the markets, he has no doubts that over the longer term, markets will continue to deliver strong returns.
"Longer-term our economy will grow around 8 per cent. Plus if you consider 5-6 per cent inflation, your nominal growth rate is around 14 per cent. So, India is in a great position on the macro front. Companies have also become very cost efficient and so earnings will also recover. Without demonetisation, earnings would have recovered last year itself," added Bandyopadhyay.
Looking ahead, markets will continue to keep a watch on corporate earnings. Bank of India, Godrej Consumer Products, Indigo, Titan and Mahindra & Mahindra are among some of the major companies announcing earnings next week.
