With benchmark indices inching closer to their all-time highs, investors and traders are changing tack on their stock market bets. Investors are shifting money to mid- and small-cap shares from their large-cap peers on worries that the indices might not be able to sustain gains. The Nifty briefly crossed the psychological 6,000-points mark on Wednesday, but slipped below this level before close, as nervous investors booked profits in large-cap shares to reinvest in potential winners among mid-cap shares.
The Nifty ended at 5,993.25, up 42.40 points or 0.71 per cent over yesterday. The Sensex rose 133.43 points or 0.68 per cent to close at 19,714.24. Both indices are about six per cent away from their record levels.
“With the Nifty nearing its all-time high, investors are being a bit cautious and shifting to mid-cap shares, which have not rallied much,” said Sankaran Naren, chief investment officer at ICICI Prudential Asset Management.
Advances beat declines 1,797:1,166 on the Bombay Stock Exchange (BSE), showing the appetite for stocks outside the benchmark indices, which have gained almost 25 per cent in 2012. The movements in mid- and small-cap indices since December 1, 2012, which have just about performed in line with the Sensex, do not reflect the increased appetite for these shares. According to fund managers, this is because shares with the highest weightage on these indices have already run up in 2012. For instance, shares of Federal Bank, Glenmark Pharma and Tata Global, which were among the top performers in 2012, have sizeable weightages on the mid-cap indices.
“The rally is spreading across to a larger section of mid- and small-cap stocks,” said Sandip Sabharwal, chief executive officer, PMS, of Mumbai-based broking firm Prabhudas Lilladher. “The valuation gap has predictably widened in the last few months,” he said.
Sabharwal said investors are betting on earnings surprises in mid-cap companies as expectations are modest.
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Foreign institutional investors (FIIs) net bought shares worth Rs 1,107.67 crore ($20 million) on Wednesday, according to provisional BSE data. In 2012, these investors poured about $23 billion into Indian stocks.
Broking firm CLSA said in a report on Tuesday that FII inflows worth $10 billion will be important for the markets to return 10 per cent in 2013.
“With the domestic investors staying away from the equity markets for the past four years in a row, FIIs have remained the key stock market driver,” said CLSA, which has a Sensex target of 21,250 for December 2013.
Over the past 15 years, FIIs have been net sellers for only three years (1998, 2008 and 2011) and since CY03, have invested $10 billion every year, said CLSA.
While FIIs may continue investing in India in 2013, too, fund managers said sorting out the government’s finances will be the main trigger for a renewed bull run.
“The market has room for more upsides provided the government is able to control its current account and fiscal deficit,” said Naren.
India’s current account deficit (CAD) swelled to $22.4 billion (5.4 per cent of GDP) in the July-September quarter of 2012-13 from $16.6 billion (3.9 per cent of GDP) in the previous quarter.
“A high import bill on account of gold and oil imports and falling exports due to global slowdown has lately kept India’s CAD at consistently high levels,” said CRISIL. “India’s current account is likely to remain under pressure due to the composition of its import basket, which is largely dictated by its energy needs as well as a whole range of capital goods and manufactured intermediates/components,” the ratings agency said in a recent report.