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Bulls Call the Shots

It was an eventful week in which the FIIs returned in full force pushing the BSE Sensex up by 4.29 per cent. While the mid-cap rally continued, PSUs were the biggest gainers among sectoral indices.

Bulls returned to stock markets with a big bang, showing buying interest across sectors. Large-cap indices, the BSE Sensex and the S&P CNX Nifty rose 4.29 per cent and 4.02 per cent, respectively, over the week. The mid-caps continued to shine brighter as the CNX Mid-cap 200 Index was up a sharp 5.12 per cent. Pharma and FMCG stocks were also in the thick of things, with the BSE Healthcare Index and the BSE FMCG Index gaining around 3 per cent each. This week, while there were many winners, PSU stocks emerged as the champions with the BSE PSU Index gaining more than 8 per cent. Much of the push came from the FIIs, which stormed the market with net purchases of Rs 551 crore over the week.

Optimism was felt throughout the week with the Sensex moving up higher in every trading session, except on Tuesday, when there was general pessimism about the earnings prospects of IT companies in the light of a strong rupee. Although value buying saw the BSE IT Index inch up 47 points on Wednesday, the momentum could barely last till the end of the week. Therefore, the BSE IT Index managed just a 0.42 per cent gain over the week.

What was IT sector's loss turned into an advantage for others. The rupee appreciation makes imports cheaper. This is said to have been the reason for Reliance Industries'— the Sensex's largest constituent—to move up 10 per cent over the week. In the last fiscal, the company had imported 97 per cent of its raw materials. Activity in other index constituents, such as SBI, Zee Telefilms, ACC, Tisco and L&T, saw the Sensex clock substantial gains. Tisco and L&T gained 8.60 per cent and 6 per cent, respectively, on the back of good results and the announcement of hefty dividend payouts. As for Zee Telefilms, the lowering of the customs duty on set-top boxes saw the scrip notch up a 9.60 per cent gain. Hopes of an open offer in ACC because of the auction of Harshad Mehta's stake, on the other hand, pushed the stock up by 7 per cent.

Also, the week saw continued rally in banking stocks. PSU banks, such as Punjab National Bank, Canara Bank and Andhra Bank, announced their plan to return the equity capital to the government. Since early 90s, PSU banks have needed capital infusion, which the government provides in the form of re-capitalisation bonds. In the recent years though the reliance on the government has reduced as most PSU banks have turned profitable. And thus they have been able to raise money through a public offering and, hence, have been returning the capital to the government. It has assumed importance now as the market price of PSU banks has touched an all-time high. The contentious issue is if the government buys back equity at face value it stands to lose around Rs 4,400 crore going by the current market price. And if the same is at a premium, banks might have to pay that out of their reserves. The finance ministry on Thursday stated that the buyback would be at par, which fuelled rally in specific PSU banks. However, late Friday the ministry clarified that the decision on the same is yet to be taken. This uncertainty resulted in profit booking across PSU bank stocks in the last trading session of the week.

Globally, in the US, an improvement in business and consumer confidence saw the Dow Jones gain 2.89 per cent and the Nasdaq move up 5.62 per cent.

Outlook
The broadbased rally in stock markets gives an indication that an uptrend from here is in sight. However, the monsoon is yet to arrive and the sustenance of this rally is likely to depend on normal rainfall. In the immediate term, PSU banks could witness some correction until the government gives a clear indication about equity buyback price.