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Friday, 3 October 2014

Weekly wrap: Large caps slip; investors bargain hunt in mid, small caps

Frontline shares drifted lower in a truncated trading week, but there were plenty of takers for small and midcap stocks. The market will remain closed for trading on Thursday (Gandhi Jayanti), Friday (Dussehra) and Monday (Bakri-id). The RBI kept benchmark rates unchanged at its monetary policy review on Tuesday, and at the same signaled that the next rate cut was unlikely before end 2015, if at all.

The BSE Sensex ended the week at 26,568, down 0.2 percent over last Friday, and the Nifty closed at 7946, down 0.3 percent.

In comparison, the BSE Midcap Index gained 0.6 percent and the Small Cap Index rose 1.2 percent.

 IT, pharma, and media were among the best performing sectors, while shares of realty, metal, power, PSU banks and capital goods companies took a beating. Also read: Modi premium over, market's focus back on quality stocks: Ridham Desai

A section of the market is getting cautious as current valuations seem to price in most positives, even though things have not really got moving on the ground. The somber mood in global markets ahead of a likely rate hike in the US also weighed on sentiment. Already, the rupee is under pressure because of the strengthening of the dollar, and some players fear this could prompt profit booking by short term FIIs as a weak rupee could erode their profit margins.

Prime Minister Narendra Modi’s visit to the US and the investment commitments from top US CEOs failed to move the market, which is now waiting for some strong policy action by the government to get the economy going.

The RBI has made it clear that it will not cut rates unless it is confident of hitting the January 2016 consumer inflation target of 6 percent. The central bank said it was confident of achieving the 8 percent inflation target for January 2015, but that would not be a good enough reason to reduce rates.

 Also read: Citi sees Sensex at 31K by Dec'15; expects gradual rerating

Brokers expect some action in IT stocks in the run up to the second quarter earnings announcement.

“For the top-five Indian IT firms, we expect sequential growth trends to accelerate in constant currency,” brokerage house Credit Suisse said in a note to clients.

Goldman Sachs too has sounded a bullish note on IT stocks despite the recent outperformance.

“Relative to its own history, sector valuations are not stretched and implies USD revenue growth of 14 percent versus our forecast of 15 percent CAGR in FY14-FY16 (estimated),” said the Goldman note, adding that market expectations from large caps like Infosys and Wipro were subdued despite Q2FY15 being a seasonally strong quarter for the industry.

Wipro, Infosys and Sun Pharma were among the best performers in the Nifty, gaining 5-7 percent.

 DLF, Tata Power, JSPL and Tata Steel figured among the worst performers, shedding 4-7 percent.

 Among midcaps, HOV Services (+ 53 percent), Gammon Infra (+ 18 percent), Mangalore Chemicals & Religare Enterprises (+16 percent each), Tata Sponge (+14 percent), Berger Paints (+ 12 percent), Strides Arcolab (+ 11 percent) and Bata (+10 percent) were the big gainers.

In the big corporate development of the week, Strides Arcolab acquired Shasun Pharmaceuticals in an all stock deal in the ratio of 5 Strides shares for every 16 Shasun shares. More information Please visit this site

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