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Stock markets discount the future and move in anticipation of coming numbers. Going by this logic, and if stock markets are to be believed, it seems that a recovery of sorts may be on the cards. Or may be not. Last month, core sectoral indices such as capital goods and power outperformed the bellwether indices and even traditional defensive sectors like FMCG and IT. The BSE Capital Goods, Bankex, Power and PSU indices were up 16.6, 17.9, 13.0 & 11.0% respectively. By contrast, the BSE Sensex was up 9.1%.
Traditional defensive sectors like BSE FMCG and Healthcare were up 7.9, 8.4 respectively, while BSE IT index gained marginally by -1.4%. Even other core indices such as BSE Auto and Metals surprised on the upside and gained 12.7 and 11.1% respectively in September.
Market watchers say a lot of this move has been coming after a huge correction in these stocks. Ownership levels in these stocks have been low with more investors moving out of some of these counters that even a small buy tends to have a larger impact on the prices of these scrips. Says Motilal Oswal, CMD, Motilal Oswal Securities: “A lot of these stocks were beaten down in the last. This recovery has nothing to do with the fundamental story improving as businesses are not yet taking off.”
Experts say that a lot of the up move in these stocks has got to do with the sentiment improving on the external front, especially with the rupee rebounding to Rs 61.74 from the bottom it hit of Rs 68.83 (August 28). Some of these sentiments have had a positive rub-off on the Indian stock markets.
Says Dharmakirti Joshi, chief economist, Crisil: “A decisive upside is definitely not in sight. There is some improvement. Even if there's a mild uptick will be probably in the second half. Sentiments are improving because there's more comfort on the currency front and attempts are being made to clear projects. But problems are still big in the economy as investment cycle has not picked up. I am very cautiously optimistic right now.”
Experts also feel that the the governments recent policy announcements on fuel supply for the power sector are adding to the positive sentiments. Says R Krishna Kumar, head equity, Sundaram MF: “On the ground what the government has done for the for the power sector where fuel cost can be passed is being viewed as a positive. Changes in the road concession agreement is also in the works.”
Government proposals to provide coal and gas to power companies saw these sectors post handsome gains. GMR Infra rose 61.9%, while JP Power Ventures surged 23.9%.
PSUs such as Engineers India and SCI also rose 30.8 and 23.7% respectively. Stocks like ABB and BHEL surged 22.9 and 20.4% respectively.
BSE Realty, however, underperformed the broader indices as worries that higher interest rates would curb the demand for residential and commercial property took a toll on the stocks. The RBI increased the repo rate by 25 basis points to 7.5% in its latest credit policy on September 20.
In July, industrial production rose 2.6% as compared to a contraction of 1.8% in June. Capital goods production for the month of July rose for the first time in four by a surprising 15.6%. Says Kumar: “There has been some improvement in the core sector in the past month and may its some sort of green shoots, but not just yet.”
Experts are also saying that this could be the base effect and that one will have to wait and see how the festive season pans out. Says a fund manager of a large fund house: “One should not read too much into the last one month. We will have to wait and see what is likely to happen in the festive season.” Agrees Oswal: “The market sentiment has been positive, but it remains to be seen whether it is sustainable.”
