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Robust Growth Fuels Price Rise

Stock markets received a major fillip this week when official data showed that the Indian economy had grown by 7.4 per cent in the second quarter, better than the market's expectations of 6.9 per cent. Investors are expecting that the soon-to-be-announced corporate results would also be as heart-warming.

A late surge helped equity markets register very impressive gains for the week. The major impetus came when the latest official data showed that the economy had grown by 7.4 per cent in the second quarter, bettering even the market's expectations of 6.9 per cent. This coupled with the advance tax collection figures announced earlier in September has fuelled expectations of Corporate India's strong second quarter earning figures.

The week saw a major surge in stock prices in the last three trading sessions, with the benchmark indices gaining over a per cent on each of these days. The overall weekly performance card showed that the Nifty had gained 3.06 per cent while the Sensex had moved up by 2.67 per cent. The S&P CNX 500 managed to keep up with this pace registering an increase of 2.56 per cent. However, the mid-cap stocks were found lagging, particularly on Friday, when the momentum was with the large-caps. The CNX Midcap 200 gained 1.83 per cent during the week.

Among sectoral indices, IT stocks outperformed all other sectors. Despite political uncertainties in the US, the industry is bullish on the outsourcing story. Indian firms, too, have lined up an acquisition chest to expand capacity. The BSE IT Index gained a sizzling 4.27 per cent during the week. After the steep increase witnessed in pharma stocks over the past few weeks, there are strong signals of consolidation in stock prices in this sector. The BSE Healthcare Index lost some of its earlier steam but nevertheless increased 1.58 per cent during the week. FMCG stocks seem to have again slipped into a directionless mode, after advance tax collections showed signs of a poor second quarter performance and a likely decline in earning figures for some of the sector heavyweights. The BSE FMCG Index inched up only 0.4 per cent in an otherwise bullish market.

Stocks of oil PSUs were depressed for most of the week on account of high international prices of crude. However, PSU stocks witnessed buying pressure after a government announcement that PSUs would be asked to pay at least a 20 per cent dividend and also consider issuing bonus shares. Moreover, signs of softening crude prices propelled the index on Friday. The BSE PSU Index gained 3.11 per cent over the week. The second quarter results for banks are not expected to be great on account of the high volatility in the debt, which has eaten into their treasury profits. Reflecting this sentiment, the BSE Bankex underperformed all other indices and was down 0.13 per cent over the week.

The average traded volume on the NSE dipped 8.33 per cent this week. The securities transaction tax has come into effect from the beginning of October and it would be interesting to see how volumes respond to it. FIIs continue to pour money in Indian stocks and increased their exposure in Indian equity by Rs 775.4 crore this week. Domestic funds are showing signs of edginess at current valuation levels and would probably wait till the announcement of second quarter results before making their next big call. Till Thursday, they had reduced their exposure by Rs 185.89 crore.

Overview
The robust growth registered by the economy along with the advance tax collection figures of Indian corporates announced earlier in September have guided the buying activity in certain sectors. The markets, over the next few sessions, are expected to be driven by second quarter performance reports of sectors and also specific stocks. Investors, too, should keep their ears open for such announcements. However, a caveat is perhaps in order here. Investors should try to avoid panic-selling at all costs as the fundamentals are unlikely to turn adverse overnight.