Clearly, the results season has not begun well. When the index leaders deliver muted to disappointing results, the season’s score board starts looking worrisome. This season saw two big private banks struggle to perform, and the third one announced an upsetting result. This comes at a time when banking was a significant performer in the Nifty for the first six months of the calendar year.
While the Nifty’s IT pack was expected to disappoint, the banking performance was off script. This raises a worrying question about which sectors or companies will hold the nifty together at current levels. The Nifty has enjoyed stability for a long time as sectoral performances kept rotating and stabilising the index. If one sector was pulling the index down due to poor financial performance and weak commentary, another sector did the heavy lifting to hold the Nifty up. Now that the top order of the Nifty has already reported quarterly results, it remains to be seen how other companies can compensate for the weakness in the top order numbers. The scorecard now reads like the Indian fourth innings in the third test against England. The remaining Nifty companies will now go through the motions for the rest of this result season.
The action will naturally shift to the midcap and smallcap results. Here, the problem remains simple: all good results are priced in. Valuations leave no room for any bad performance. Under such circumstances, disappointing results from companies will lead to sharp cuts in valuations.
What remains to be seen is how the market will react to the good numbers from performing companies. If the market reacts as if the good numbers are already priced in, then we may be entering a weak phase in the broader market. The coming days will be critical for the markets. Weak results, poor sentiment, and a lack of positives will test the overall market stability. The very low volatility index reflects an absence of fear in the markets. Even this will be tested.