The bulls finally came out in strength at Dalal Street, shoring up the Sensex by 3.59 per cent (106 points) and Nifty by 3.76 per cent (35 points). The mid-cap story continued unabated with the S&P CNX Midcap Index shooting up by 7 per cent (53 points) over the week. While the encouraging Q4 results from banks kept up the momentum in the sector, expectations of a good monsoon resulted in a broad-based rally. However the institutional activity was lackluster during the week.
The week started on a bearish note with technology stocks as the main culprits. Fears that an appreciating rupee may erode the earnings of Indian technology companies contributed to the negative sentiment. As a result, BSE IT Index shed 2.44 per cent (25 points) on the first trading day. With the sector being gradually down-graded due to spate of poor earnings guidance, the sharp drop in operating margin of Digital Global Soft was no surprise to market participants. However, optimism prevailed on other trading days and value buying saw the IT Index climb up by over 4 per cent in the course of the week.
The outpouring of healthy Q4 results from banks continues to justify the markets belief in these stocks. Canara Bank and Corporation Bank recorded 37 per cent and 35 per cent growth in last fiscal's net profits respectively. However one needs to keep in mind that treasury profits have largely contributed to these gains and an encore may not happen. Hence, in the last trading session, most banking stocks witnessed profit booking. One factor, which can put them on a high growth trajectory over the long run, is the recovery in their NPAs and greater reliance on their core activity of lending and borrowing as the economy picks up.
PSU stocks were also in the limelight with non-disinvestment candidates IOC and ONGC gaining 12 per cent and 9 per cent respectively. Energy major GAIL was also a winner with its stock showing an 8.4 per cent up move. The country's largest bank SBI was on a winning streak and did not correct along with other banking stocks on Friday. Over the course of the week it moved higher by 10.9 per cent. This strong showing led the PSU index up by 7 per cent.
Another key trigger for the market this week was the expectation of a good monsoon that drove up the index heavyweights that are dependant on rural demand for their volumes growth. While HLL gained 6 per cent ITC rose by 5.27 per cent, the BSE FMCG gained 5.38 per cent—its highest weekly gain in the current calendar. Amongst auto stocks, Hero Honda was up 7 per cent over the week. On the other hand the latter's rival—Bajaj Auto's robust 34 per cent growth in profits in last fiscal failed to create any positive impact on the stock. Besides the monsoon factor, intense competition will be the key driving force for the two-wheeler giants.
While auto majors may continue to fight for a bigger pie in domestic markets, auto ancillary stocks have flared up on news of huge export orders from international auto manufactures. Some of the key gainers during the week were-- Bharat Forge (4.07%), Exide Industries (3.91%), Gabriel India (4.79%), Sona Koyo Steering Systems (10.70%).
In the search for good news, market participants are now pegging their hopes on the rain gods. Warning signals are emerging that the rally in PSU bank stocks may have over extended itself. The coming week could be crucial in this regard.