Equity markets were on fire this week, belying expectations of corrections and consolidation at current levels of valuation. But this time around, it was the large-caps that led the charge. The mid-cap correction is underway and so expectedly the gain in mid-caps was limited only to specific sectors, where the stocks are still perceived to be undervalued. Sentiments were especially bullish in certain sectors where the second quarter earnings are expected to be healthy. Investors, taking their cue from the advance tax payments for the second quarter, are increasing their holdings in these stocks.
The bullishness on the large-caps and especially the index heavyweights was noticeable in the BSE Sensex's 3.56 per cent rise and the S&P CNX Nifty's 3.89 per cent rise over the week. The broad market too kept pace with the overall movement, with the S&P CNX 500 gaining 3.29 per cent over the week. However, the mid-cap correction was apparent from the CNX Midcap 200 Index's rather poor showing of a gain of 0.9 per cent over the week.
Sector-wise, banking stocks were the most volatile during the week. The RBI's decision to hike the CRR took its toll on the banking stocks towards the beginning of the week especially as the hike was supposed to signal the build up to an imminent interest rate hike. However, Friday's drop in the inflation figure proved to be the saving grace and banking stocks recovered with gains of 2.7 per cent. As a result, the BSE Bankex gained 3.11 per cent during the week. However, the real buoyancy was noticed in the FMCG sector. The recovery in monsoon experienced over the last two months is expected to boost sales of FMCG products. Moreover, the depressed sentiment surrounding the FMCG stocks had left their valuations attractive (HLL is one such case in point). Hence, the sector, for quite some time now, has witnessed continued buying interest. This week the BSE FMCG moved up 4.69 per cent.
Large-cap pharma stocks had a good run this week but mid-caps saw some correction. Nevertheless, the BSE Pharma Index registered gains of 3.46 per cent during the week. The softening of oil prices globally as well as the strong appreciation in the rupee is expected to translate into improved bottomlines for the oil PSUs. As a result these stocks gained heavily this week. The BSE PSU Index registered the best performance for the week with gains of 4.73 per cent. IT stocks were not in favour this week and underperformed the market, especially after Wednesday when Goldman Sachs downgraded the outlook for the sector. Consequently, the BSE IT index's gains of 2.35 per cent was less than that of the overall market.
The strong bullish sentiment prevailing in the market was also highlighted by a surge in the combined average traded volumes on both the BSE and the NSE which rose 21.08 per cent. FIIs contributed to the bullish trend by persisting with their buying Indian equity; their net holdings increasing Rs 347.5 crore over the week. Interestingly, the FIIs turned net sellers on Wednesday when the overall markets too dipped. Perhaps, it is a signal that the FIIs have abandoned their contrarian strategy. Domestic mutual funds continued to remain cautious and showed no signs of jumping into the bandwagon. Till Thursday, their combined holdings had dipped by Rs 80.53 crore.
Outlook
The markets could see some consolidation at current levels mainly on account of profit-booking. The mid-cap downward correction is expected to continue. Banking stocks will take their cue from the inflationary trend. If the inflation rate dips further, banking stocks can be expected to move up especially because the short-term cost-push inflationary pressure on interest rates will ease off. Auto stocks too could react to the inflationary numbers because of the impact the interest rate is expected to have on the availability of cheap consumer finance.
The last couple of weeks have seen the momentum shift to large caps and this is expected to continue. More importantly, this would be a healthy development because large-caps are inherently less volatile than the mid-caps and so the downside risk would be relatively lower.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
