Galloping crude prices and the attendant inflation, the dangling sword of an interest rate hike and increasing fears that current valuations may not support higher index values kept key indices subdued. The news of TCS's listing and exceptionally good stock performance in the US markets turned out to be the saving grace.
Stocks remained range-bound. Monday and Tuesday were by and large uneventful while Thursday's good showing was neutralised by a poor performance on Wednesday and Friday. Over the week, the 30-stock BSE Sensex closed 0.75 per cent lower, the 50-stock S&P CNX Nifty closed 0.49 per cent down and the broad S&P CNX 500 slipped 0.34 per cent.
However, mid-caps continued on their dream run. The CNX Mid-Cap 200 managed to buck the general downward trend and moved further up by 1.47 per cent during the week. While it is largely believed that at current valuations, most large-caps are unlikely to rise further, it is not the same case with mid-caps. Most of the mid-caps look poised for take-off and thus higher P/Es look a definite possibility.
Among sectors, the IT sector outperformed all others while the banking sector was the worst performer. Buoyed by strong performances by the NASDAQ, which has risen 4.6 per cent during the week, the BSE IT index too increased 3.6 per cent during the week. Tech stocks gained on Thursday as the NASDAQ gained the previous night and TCS said it would be listed on August 25. The BSE Healthcare Index continued to totter in the absence of news. Even last week's near 2 per cent trend-defying gain was lost in the week's trading, as investors indulged in profit-booking on pharma stocks. The BSE Healthcare Index lost 1.67 per cent during the week.
Increasingly, it seems as though the late arrival of the monsoons were the proverbial last straw on the camel's back. The revival in monsoons has failed to lift sentiment on FMCG stocks. The BSE FMCG Index followed the broad trend in the benchmark indices and closed 0.81 per cent lower for the week. Worries over record high crude prices have kept stock prices of oil PSUs subdued. Overall, the BSE PSU was down 1.13 per cent during the week.
Continuously rising inflation and bond yields are confirming fears of a possible interest rate hike. If and when the rate hike does come about, it will definitely affect the net interest margin of banks. Bank bottom lines are already under pressure because of evaporating treasury profits. If they are forced to take any further hits on their profitability, bank stocks could go into a tailspin. Reflecting this sentiment, the BSE Bankex underperformed all other indices to close 2.72 per cent lower for the week.
The general lack of direction in the markets has resulted in lower turnover at the bourses. The combined average daily turnover on both the NSE and the BSE has nosedived 15.75 per cent during the week. FIIs were net buyers to the tune of Rs 587 crore till Thursday. On Monday, they increased their net exposure by Rs 805.3 crore and were net sellers on the other days of the week. The transaction tax seems to have had a depressing effect on mutual fund turnover levels as overall volumes were low but they were net buyers in the week till Wednesday to the tune of Rs 73.29 crore.
With the government finally waking up to the inflationary situation, price hikes are likely to become increasingly tough. This could result in a margin squeeze for oil PSUs and the steel sector. However, a strong global demand for steel could see a hike in the export prices of steel. The interest rate hike could spell trouble for the auto sector as cheap finance, one of the driving forces behind the auto boom, could see a reversal.
For quite some time now, mid-caps have been the best performers among the various stock categories. However, direct investing into mid-caps could be fraught with danger as the rise has been limited to select stocks. Finally, there is unlikely to be any major movement in the market and the markets are likely to remain range-bound. Long-term investors should ignore the noise and look for value picks.