Benchmark indices Sensex and Nifty saw a sharp decline on Friday morning, driven by disappointing Q3 earnings from Axis Bank and muted guidance from Infosys. Despite strong results from Reliance Industries, these setbacks weighed heavily on market sentiment.
The fall underscores growing concerns over key sectors, particularly banking and IT, as they grapple with earnings pressures, weak revenue growth projections, and analyst downgrades. Let’s delve deeper into the reasons behind the dip and the factors at play.
Key Drivers Behind the Market Decline
1. Infosys Shares Plunge Amid Muted Guidance
Infosys, despite posting a solid Q3 performance, saw its shares drop 5.71% to hit ₹1,816.10 on the BSE. The IT giant’s upward revision in FY25 revenue guidance was overshadowed by concerns over a likely Q4 revenue decline in constant currency (CC) terms.
Key Concerns for Infosys:
- Revenue Guidance: Revised guidance implies a 2.2% to 0.2% QoQ decline in CC terms for Q4, attributed to seasonality and fewer working days.
- Mega Deal Wins: Muted growth in mega deals raised doubts about the company achieving double-digit growth in FY26.
- Third-Party Revenue Decline: The drop observed in Q3 further dampened investor sentiment.
2. Axis Bank Misses Q3 Expectations
Axis Bank shares tumbled 5.31% to ₹985 after a disappointing Q3 report. The private lender faced challenges across several financial metrics, leading to widespread analyst downgrades.
Challenges for Axis Bank:
- Higher Credit Costs: Axis Bank reported the highest credit cost among the top five banks.
- Slippages: Significant slippages, driven by agricultural and unsecured loans, eroded profitability.
- Slow Deposit Growth: Axis Bank lagged peers in deposit growth, raising concerns over its competitive positioning.
- Muted EPS Growth: Analysts forecast mid-single-digit EPS growth for FY26, indicating limited near-term upside.
3. Broader Market Impact
- Infosys: Contributed a 322-point drop in Sensex due to its sharp fall.
- Axis Bank and Peers: Axis Bank, ICICI Bank, HDFC Bank, and Kotak Mahindra Bank collectively dragged the index down by another 300 points.
- Global Cues: Weak global market trends and sustained FII selling added to the pressure.
Bright Spot: Reliance Industries
In contrast to the broader market sentiment, Reliance Industries Ltd (RIL) gained 2.14%, closing at ₹1,295.85. Its impressive Q3 performance and attractive valuations following a 19% drop over the past six months drove positive sentiment.
Analyst Views on RIL:
- Upgraded to “Buy” by multiple brokerages due to strong Q3 results.
- Trading at appealing valuations, suggesting potential upside in the coming quarters.
Expert Insights
Market experts suggest that while the correction has created near-term volatility, it has also made valuations for large-cap stocks more reasonable.
V.K. Vijayakumar, Geojit Financial Services:
“Nifty is trading at around 19 times FY26 earnings, presenting opportunities for long-term investors. Volatility driven by FII selling may continue, but this is a good time to buy high-quality large-cap stocks.”
Sharekhan on Infosys:
“Despite upward guidance, the Q4 outlook points to revenue seasonality and fewer working days impacting growth. Investors should monitor deal pipelines closely.”
What’s Next for Investors?
For long-term investors, the current correction could present an opportunity to accumulate quality stocks at attractive valuations. Here’s what to consider:
Focus Areas for Investment:
- Large-Cap Stocks: Valuations for leading companies, particularly in IT and banking, have become more reasonable.
- Energy Sector: Reliance Industries’ strong performance and favorable outlook make it a potential buy.
Strategies to Navigate Volatility:
- Avoid panic selling during short-term corrections.
- Use dips to add fundamentally strong stocks to your portfolio.
- Keep an eye on global cues, including US bond yields and FII activity, which remain critical market influencers.
FAQs
Why did Infosys shares fall despite strong Q3 results?
Infosys revised its FY25 revenue guidance upward but hinted at a potential Q4 revenue decline in constant currency terms, driven by seasonality and fewer working days. This, combined with muted mega deal wins, led to investor concerns.
What led to Axis Bank’s poor performance in Q3?
Axis Bank reported higher credit costs, slower deposit growth, and increased slippages in agricultural and unsecured loans. Analysts highlighted these factors as key reasons for the stock’s decline.
How much did Infosys and Axis Bank contribute to Sensex’s fall?
Infosys contributed 322 points, while Axis Bank and its peers added another 300 points to Sensex’s decline.
Which stocks performed well during the market correction?
Reliance Industries gained 2.14% due to strong Q3 results and attractive valuations, offsetting some of the losses in the index.
Should investors buy during this correction?
Yes, long-term investors can use this opportunity to accumulate high-quality large-cap stocks, as valuations have become more reasonable.
What are the global factors affecting the market?
Declining US bond yields and a weaker dollar index are positives, but they haven’t been sufficient to counter FII selling pressure.
Will the market recover soon?
Recovery depends on factors like FII activity, corporate earnings in Q4, and global economic conditions. Analysts expect a bounce-back in high-quality stocks over time.
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