Benchmark equity indices edged higher on Friday, with the BSE Sensex gaining 124 points, driven by a rally in Wipro and Reliance Industries after both companies reported strong quarterly earnings. However, telecom stocks took a beating as analysts feared Reliance's launch of low-cost Jio Phone would escalate the already fierce price war in the telecom market.
The BSE Sensex closed 32,028.89 points, up 124.50 points or 0.4 per cent. The NSE Nifty 50 was also up 0.4 per cent or 42 points to end at 9,915.25.
Overall, the week saw volatile trading; the Sensex sank 364 points on Tuesday, after a surprise hike in cess on cigarettes hit stocks of companies like ITC, Godfrey Phillips and VST Industries. However, markets recovered on Wednesday, Sensex edging up 244 points as a few pharmaceutical companies gained on securing regulatory approvals for new drugs and Hindustan Unilever hit a record after better-than-expected results.
For the week, the Sensex ended almost flat (up 0.02 per cent), while the Nifty 50 rose 0.3 per cent.
On Friday, Wipro and Reliance were the big drivers. Wipro, India's third largest software services exporter, surged 6.5 per cent after its earnings beat street expectations in the first quarter and the company also announced a Rs 11,000 crore share buyback offer.
“The quarter was better than expected on all fronts, mainly driven by better-than-expected volume growth...The buyback is a good amount and is being done at a good price and will see a stock price rise in the immediate future,” said Sarabjit Kour Nangra, vice president of research at Angel Broking.
Reliance Industries jumped 3.8 per cent to its highest in over nine years after the company reported strong earnings in the April-June quarter and on Friday also announced a new 4G enabled feature phone, that it will effectively offer for free.
The Jio phone will be up for pre-order from August 24, and deliveries begin from September. Customers need to pay a security deposit of Rs 1,500, which they can get back if they return the phone after three years. Furthermore, Reliance Jio is also offering special price plans, which include free voice calls and unlimited data on the Jio phone. This rattled incumbent telecom operators, whose earnings have already taken a hit due to Jio's aggressive 4G push, that has forced the likes of Airtel, Idea and Vodafone to launch competitive offers.
Idea Cellular tumbled more than 3 per cent, Bharti Airtel slipped over 2 per cent and Reliance Communications was down about 1 per cent over concerns of another looming price war.
“Reliance Jio’s announcement on its service offerings and the new phone, would continue to act as a disruptive force for the telecom industry, which is already reeling under pricing pressure in response to Jio’s aggressive pricing plans. Going forward, we expect the incumbents to remain under pressure as realisations for data, pressure to increase the pace of network rollout and highly leveraged balance sheets would continue to hurt profitability,” said Nitasha Shankar, head of research at Yes Securities.
So far this year, the BSE Sensex is up more than 20 per cent as fund flows from foreign institutional investors and domestic asset management companies have remained strong.
Several analysts have been cautious on investing in the market at present levels, citing high valuations and lack of a broad-based corporate earnings recovery.
“Very little, objectively speaking, gives us enough conviction to buy at current levels,” said Suhas Harinarayanan, head of research at JM Financial Institutional Securities, said in his monthly strategy report.
For the week ahead, investors continue to keep a track of the ongoing earnings season. Some of the major companies announcing results next week include Bharti Airtel, Axis Bank, HDFC, ICICI Prudential Life Insurance and Dr Reddy's among others.
On July 25, US Federal Reserve's Federal Open Market Committee will begin its two-day meeting and a decision on interest rates will be announced on July 26, which will also be closely monitored.
“Telecom market continues to see a churn, and that gave impetus to weekend profit booking...Next week, FOMC meet and derivative expiry (monthly futures and options contracts) are likely to keep markets on edge,” said Anand James, chief market strategist, Geojit Financial Services.
