 "Riding the rally in BSE 500 stocks")
Despite escalating tensions in West Asia sending crude oil prices soaring and the coming US Federal Reserve meeting in mid-September to decide the tapering of its quantitative easing (QE) programme, the Sensex has gained 11.7 per cent till date from its recent low of 17,906 on August 21.
The S&P BSE Sensex and CNX Nifty closed at 19,997 and 5,913 levels on Wednesday.
At the domestic level, what aided the sentiment to a large extent were the slew of measures adopted by the Reserve Bank of India’s new governor to arrest the rupee’s fall against the dollar, even as war clouds ebbed over West Asia.
The benchmark indices have bounced back 12 per cent in the past five trading sessions, with foreign institutional investors (FIIs) investing a net Rs 4,638 crore in Indian equities, according to provisional data disclosed by the stock exchanges.
As a result, of the 299 stocks from the S&P BSE 500 index that hit a 52-week low recently, as many as 218 have bounced back and outperformed the benchmark indices by 12–125 per cent, on positive news flow and value buying.
“For the past few months, the markets have been spooked by sharp depreciation in the rupee, accompanied with heightened volatility. However, the markets seem to be ignoring the self-restorative capacity of rupee depreciation, as it should now lead to higher export competitiveness for Indian goods and services,” said Abhay Laijawala, managing director and head of research, Deutsche Equities India.
Gains were also visible in banking and financial sector stocks. Those of YES Bank, Federal Bank, Axis Bank, ICICI Bank, HDFC, Oriental Bank of Commerce and Indian Overseas Bank surged 23–40 per cent. “Banking stocks have rallied on the back of measures announced by the new RBI governor to support the battered rupee and liberalise the banking system. The rupee appreciated and the 10-year bond yield receded in response to the announced measures,” said Amar Ambani, head of research at IIFL.
Smart movers
Though the rally in most of these stocks has been fuelled by the overall sentiment and value buying at lower levels, select stocks have gained ground on positive news flow.
Ranbaxy, for instance, has soared 77 per cent to Rs 449 in the past month after the company narrowed its consolidated net loss in the June quarter. The stock had hit a multi-year low of Rs 254 on August 2. Approval for the generic launch of hypertension drug Diovan, Valcyte (an anti-viral drug) and Nexium are also seen as the next big triggers for the stock, analysts say.
Shares of Strides Arcolab have surged 66 per cent to Rs 916 from a 52-week low of Rs 553, on anticipation of government clearance for a Rs 5,168-crore deal of the US-based Mylan Inc for acquiring the company’s Agila Specialties unit.
Metal shares such as those of Tata Steel, Sesa Goa, Hindustan Copper, National Aluminium (Nalco), Hindustan Zinc and Hindalco Industries have rallied about 35 per cent each from their respective lows, on improving economic data in China.
The stock of MCX, promoted by the Jignesh Shah-headed Financial Technologies India, continued its northward journey – rallying 93 per cent to Rs 460 from a record low of Rs 238 on August 19 – after the company clarified it had no exposure to crisis-hit group company National Spot Exchange (NSEL).
Top picks
Given the sharp rally, analysts suggest investors should invest but selectively.
“Our scenario analysis and valuation assumptions yield a mix of defensive and beaten-down cyclicals as top picks. State Bank of India and Punjab National Bank are our high-conviction banking picks. ONGC, Power Grid, Ranbaxy and Coal India are our top defensive bets,” said R Murali Krishnan, head of equities at Karvy Research.
Macquarie Research suggests that though the valuations look tempting, the macro environment looks fraught with headwinds. Some of their top picks are Larsen & Toubro, HDFC Bank, Reliance Industries, Coal India, Mahindra & Mahindra, Ranbaxy and BPCL.
Sector-wise, Nick Paulson-Ellis, country head (India) of Espírito Santo Securities likes information technology Services (Infosys, Persistent Systems); Telecoms (Bharti); Pharma (Lupin, Cipla), and pockets of financials (HDFC, HDFC Bank, IDFC, Federal Bank) and consumption (Titan Industries, Emami).
“We’d continue to avoid public sector banks, industrials, utilities and real estate. Materials was on our avoid list but is looking more interesting as China starts to improve, and with some signs of the regulatory outlook improving in India, though it is a wait and watch situation for now. We see Hindustan Zinc and Sesa Sterlite as good plays, given upcoming catalysts over the quarter with the government stake sale,” he says.
The S&P BSE Sensex and CNX Nifty closed at 19,997 and 5,913 levels on Wednesday.
At the domestic level, what aided the sentiment to a large extent were the slew of measures adopted by the Reserve Bank of India’s new governor to arrest the rupee’s fall against the dollar, even as war clouds ebbed over West Asia.
The benchmark indices have bounced back 12 per cent in the past five trading sessions, with foreign institutional investors (FIIs) investing a net Rs 4,638 crore in Indian equities, according to provisional data disclosed by the stock exchanges.
As a result, of the 299 stocks from the S&P BSE 500 index that hit a 52-week low recently, as many as 218 have bounced back and outperformed the benchmark indices by 12–125 per cent, on positive news flow and value buying.
“For the past few months, the markets have been spooked by sharp depreciation in the rupee, accompanied with heightened volatility. However, the markets seem to be ignoring the self-restorative capacity of rupee depreciation, as it should now lead to higher export competitiveness for Indian goods and services,” said Abhay Laijawala, managing director and head of research, Deutsche Equities India.
Gains were also visible in banking and financial sector stocks. Those of YES Bank, Federal Bank, Axis Bank, ICICI Bank, HDFC, Oriental Bank of Commerce and Indian Overseas Bank surged 23–40 per cent. “Banking stocks have rallied on the back of measures announced by the new RBI governor to support the battered rupee and liberalise the banking system. The rupee appreciated and the 10-year bond yield receded in response to the announced measures,” said Amar Ambani, head of research at IIFL.
Smart movers
Though the rally in most of these stocks has been fuelled by the overall sentiment and value buying at lower levels, select stocks have gained ground on positive news flow.
Ranbaxy, for instance, has soared 77 per cent to Rs 449 in the past month after the company narrowed its consolidated net loss in the June quarter. The stock had hit a multi-year low of Rs 254 on August 2. Approval for the generic launch of hypertension drug Diovan, Valcyte (an anti-viral drug) and Nexium are also seen as the next big triggers for the stock, analysts say.
Shares of Strides Arcolab have surged 66 per cent to Rs 916 from a 52-week low of Rs 553, on anticipation of government clearance for a Rs 5,168-crore deal of the US-based Mylan Inc for acquiring the company’s Agila Specialties unit.
Metal shares such as those of Tata Steel, Sesa Goa, Hindustan Copper, National Aluminium (Nalco), Hindustan Zinc and Hindalco Industries have rallied about 35 per cent each from their respective lows, on improving economic data in China.
The stock of MCX, promoted by the Jignesh Shah-headed Financial Technologies India, continued its northward journey – rallying 93 per cent to Rs 460 from a record low of Rs 238 on August 19 – after the company clarified it had no exposure to crisis-hit group company National Spot Exchange (NSEL).
Top picks
Given the sharp rally, analysts suggest investors should invest but selectively.
“Our scenario analysis and valuation assumptions yield a mix of defensive and beaten-down cyclicals as top picks. State Bank of India and Punjab National Bank are our high-conviction banking picks. ONGC, Power Grid, Ranbaxy and Coal India are our top defensive bets,” said R Murali Krishnan, head of equities at Karvy Research.
Macquarie Research suggests that though the valuations look tempting, the macro environment looks fraught with headwinds. Some of their top picks are Larsen & Toubro, HDFC Bank, Reliance Industries, Coal India, Mahindra & Mahindra, Ranbaxy and BPCL.
Sector-wise, Nick Paulson-Ellis, country head (India) of Espírito Santo Securities likes information technology Services (Infosys, Persistent Systems); Telecoms (Bharti); Pharma (Lupin, Cipla), and pockets of financials (HDFC, HDFC Bank, IDFC, Federal Bank) and consumption (Titan Industries, Emami).
“We’d continue to avoid public sector banks, industrials, utilities and real estate. Materials was on our avoid list but is looking more interesting as China starts to improve, and with some signs of the regulatory outlook improving in India, though it is a wait and watch situation for now. We see Hindustan Zinc and Sesa Sterlite as good plays, given upcoming catalysts over the quarter with the government stake sale,” he says.