Stocks are betraying warning signs of fatigue after a rapid run uphill. With several companies surpassing their pre-covid-19 levels, and the ongoing results season showing the impact of the lockdown, stocks may not find enough triggers to sustain the momentum this week.

Several biggies reported a steady set of numbers that were ahead of the Street, with costs cuts shoring up operations. But revenue growth has been badly hit and shows that companies may take a longer time for a return to normalcy at least on the revenues front.

Economic activity is not gearing up much, though some betterment may be seen in the Nikkei Manufacturing Index over last month from figures to be released Monday. There is a clamour for a 25-basis point rate-cut as the RBI’s Monetary Policy Committee meeting is scheduled this week. But the recent jump in consumer price inflation is above the RBI’s 6% comfort zone. This means that in all probability the RBI will hold the status quo on interest rates.

That’s an ill boding for the markets. The Nifty-50’s valuations are already sky-high. Its price-earnings ratio crossed the 30 mark at end-July driven by higher market levels and lower first-quarter earnings. This reveals stretched stock prices. In fact, indices have more often taken a turn for the worse when stocks crossed 28-29 on the Nifty, also seen during the tech bubble of 2000.

Some of the results announced lately, though, were comforting. Some sectors stood out, particularly pharma and IT. Consumer non-durables were mixed, but not that bad. However, high fixed costs kept some core industries awash in red.

That may weigh on some companies such as Maruti. Its operating-level losses in Q1 was a bit of a dampener. Auto companies such as Tata Motors and TVS Motors also suffered operating-level losses as sales volumes tumbled, which coupled with high fixed costs dragged profits.

For some companies, rising debt may compound the covid-19 impact. JSW Steel is a case in point.

Banking companies are showing less impact of covid-19 just yet, but provisioning has been rising. Kotak Mahindra Bank raised provisions.

IndusInd Bank, too, increased provisioning for bad loans, and cut back loan growth.

The country’s largest bank in number of branches has also raised its provisioning for covid-19-related risks.

HDFC was unable to disburse retail loans. Besides, collections were hampered.

Cement stocks, though, have had a decent quarter. Pre-monsoon pent-up demand has buoyed revenues of companies like UltraTech Cements.

For the oil-to-telecoms behemoth Reliance Industries, results have been soft. But valuations have run ahead.

Interestingly, Bharti Airtel’s revenue growth was flat in Q1.

Nestle was unable to cash in demand rising during the lockdown. Markets were not expecting defensive stocks to be hit much.

However, Marico’s margins have been quite a surprise for the Street.

Airlines are in a turbulent spot, contending with high operations costs and lower passengers. But cash burn could drop further as it scales up operations.

Pharma companies have had it healthier. Some API manufacturers have seen a better quarter. Besides, margins have improved for most, thanks to lower selling & distributing & branding expenses. Stocks of Torrent Pharmaceuticals, Dr Reddy’s Laboratories and Sun Pharmaceuticals were upbeat, post-results.

Most of these stocks have been running on high retail-investor enthusiasm. Though SEBI’s recent notification on upfront margin payment could take some trim the sails of the cash market.

This results season is also tossing up quite a few surprises. This is making stock movements pretty unpredictable too. Now while stock movements are fodder for short-term traders, sharper swings may rattle the small investor. Hence, caution should be the mantra.

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