Realty, consumer durables, pharma stocks shine in Sensex's over 2,000 points rally

BSE realty index, largest gainer among the sectoral indices, surged 17% in the past month

Real estate, infrastructure, banking, consumer durables, and pharmaceutical stocks outperformed markets during the BSE Sensex's 2,000-point rally in the past month.

The BSE realty index, the largest gainer among the sectoral indices, surged 17 per cent in the past month. The index gained six per cent after the central bank slashed the repo rate by 50 basis points (bps) to 6.75 per cent on September 29. (Repo rate is the rate at which the central bank lends money to commercial banks in the event of any shortfall of funds.)

Also Read: Time for relook at rate-sensitives

The power and banking indices rallied 12 and 11 per cent, respectively. Consumer durables and health-care indices gained 10 per cent each.

The Sensex rallied 8.6 per cent from its recent low of 24,894 on September 7. The Nifty gained 619 points, or 8.2 per cent, to 8,177 from 7,559 in the past month. The BSE mid-cap and small-cap indices moved nine per cent each.

The Reserve Bank of India's (RBI) surprise move by reducing the repo rate by 50 basis points to 6.75 per cent and fading expectations that the U.S. Federal Reserve will raise interest rates this year fuelled the rally in equity markets, analysts say.

Among the individual stocks, JSW Energy, Reliance Power and Adani Power from power, Wockhardt, Jubilant Life Sciences, FDC and Marksans Pharma from healthcare and NCC, Housing Development and Infrastructure Limited (HDIL), Gayatri Projects and HCC from realty and infra stocks have appreciated more than 25 per cent each.

The total investor wealth, measured in terms of cumulative market capitalisation (market-cap) of all listed companies on the BSE, rose to Rs 99,21,059 crore, up by Rs 687,610 crore from its recent low touched in September 7.

The road ahead

Despite the rally, analysts remain concerned about the near-term prospects of the banking sector given the asset quality issues and weak credit growth.

Ankit Ladhani, an analyst with Karvy, for instance, believes that the sector is set for another year of slowdown in FY16 though FY17 looks promising. With a revival in economy along with interest rate stabilisation, he expects earnings of the banks to improve. "However for FY16, the outlook for credit growth remains weak, along with asset quality pressures likely to negatively impact the earnings growth for the banks," he says.

Rajeev Varma and Veekesh Gandhi, analysts tracking the sector with Bank of America - Merrill Lynch (Bofa-ML) peg the sector net profit growth at 19.8 per cent year-on-year (y-o-y) in Q2FY16 backed by 20.1 per cent growth in private banks' net profit and 19.6 per cent growth in government banks' net profit.

"PSU banks are likely to report weak topline growth of 4 per cent mainly on account of slower loan growth. However, private banks are expected to report strong topline growth of 22 per cent mainly owing to better loan growth due to higher share of retail loans (~40 per cent) which is showing good growth momentum. Overall, the industry's topline growth expected at 11 per cent," they said in a recent report on the sector.

As regards the consumer sector, Gaurang Kakkad of Religare Institutional Research remains positive on the road ahead for the sector given a likely volume recovery and margins gains from commodity cost tailwinds. He maintains a buy rating on HUL, Asian Paints, Dabur India, Britannia, Colgate-Palmolive (India), Bata and Jubilant FoodWorks. He maintains a sell rating on Nestle India.

Godrej Properties, Mahindra Lifespace, Sobha Developers, Prestige Estates and Oberoi Realty are among the top picks of Gaurang Shah, Vice President, Geojit BNP Paribas Financial Services in the realty space. He sees 15 per cent - 20 per cent upside in these stocks over the next one year on a conservative basis, aided by policy initiatives from the government.