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Midcaps and smallcaps outperform; Q4FY15 results to drive market direction..

The Indian market has seen a dramatic five per cent rebound from its recent lows of two weeks before.  The recovery, triggered by value buying, has been supported by passage of key government bills by Parliament and easing of worries on an interest rate increase by the US Federal Reserve.

The benchmark Sensex has gained from 27,457.6 at the close of March 26 to 28,879.38 on Friday. This has helped reverse most of the losses in March, when the benchmark indices dropped nearly five per cent, the most in a little over two years.

With the recent recovery, the benchmark Sensex is now only two per cent (less than 700 points) below its all-time closing high of 29,559.18, on January 29. The total market capitalisation of all BSE-listed companies has surpassed its previous record, by crossing Rs 106 lakh crore on Friday -- the broader market has outperformed the benchmark indices in the past two weeks. The BSE Small Cap Index has rallied 13 per cent and the BSE Mid Cap by seven per cent since March 26.

We believe the last month's fall was primarily for two reasons. The first being fear of an imminent interest rate increase in the US, which trigged a sell-off in risky assets. Second, subdued estimates for March quarter corporate earnings. The valuations had turned attractive after the correction in March, which led to a lot of buying interest. In the past two weeks, foreign institutional investors bought shares worth a little over US$500 million and domestic mutual funds have been net buyers by around Rs 2,000 crore.

Global Markets

Most global equity markets also saw a rise in the past two weeks. The MSCI Emerging Market index, for instance, has gained nearly seven per cent since March 26.

US stocks are poised for more upward momentum even as uncertainty over oil prices and Greek debt negotiations keeps the market on tenterhooks. Strong fourth-quarter US company earnings and signs of an overall improving economy, alongside what appears to be the start of a bottoming in crude oil prices, has given support to equities. After starting 2015 with its sharpest monthly drop in a year and a spike in volatility, the benchmark S&P 500.

Outlook

We believe, the market direction could be guided by corporate earnings, which will begin next week with Tata Consultancy Services (TCS), the country’s most valuable company, announcing its numbers on Thursday.

The Sensex currently trades at nearly 17 times its one-year forward earnings estimate.

Sectoral Outlook

BFSI - We are positive on select PSU banks as we expect concerns on the asset quality to reduce gradually. The valuations of banks have become very attractive.

Automobiles - Our outlook is positive. We expect revival in FY15 due to improved policy climate, better consumer sentiment and enhanced infra spending. We believe the CV cycle is near bottom and will revive in the next few months.

Capital Goods - We are bullish on this sector in the medium- to long-term as we are near the bottom of the economic cycle and expect revival in capex in H2 FY15.

Cement - There is expectation of a revival in demand for cement as infrastructure activity may picks up with a kickstart. We are thus turning bullish on the sector.

Infrastructure - We are bullish on this sector from a long-term perspective.

IT - We remain positive on this sector, as the US economy continues to recover gradually. INR volatility is a cause for concern.

Real Estate - We are neutral on this sector. Slow demand environment in most markets (except South India) has impacted sales.

Pharmaceuticals - We are bullish, as pharma companies continue to do well in the export markets and the domestic market is also likely to pick up in H2FY15.

 


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"Forum Views" Magazine Published by Brokers Forum of India. (April 2014)
Your friendly advisor since 1986,
Ashoka Ajmera
  


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