Stock of Banking, real estate, capital goods, power and consumer durables sectors have underperformed the market by reporting negative returns in the first six months of the current financial year 2013-14 (H1FY14) with the respective sectoral indices slipping over 7% each. This is as compared to 5% rise in benchmark index S&P BSE Sensex.
Interest rate sensitive sectors mainly banking and realty have fallen sharply after the Reserve Bank of India (RBI) unexpectedly raised the policy rate by 0.25 percentage points to 7.5% in a bid to control inflation and lingering concerns that high consumer price inflation may prompt RBI to raise policy rates again.
Analysts said that the interest rate sensitive sectors were hit hard after RBI’s stance on interest rates as a higher cost of credit would reduce their revenue.
The BSE Realty index was the top loser, cracking 34%, while banking index Bankex slipped 16% during this period. Capital goods and power index were down 15% and 7.5%, respectively.
State-owned banks like Dena Bank, Union Bank of India, Bank of India, Canara Bank, Andhra Bank and Union Bank of India have seen their market value declined by over 40% each on concerns of rising bad loans.
Meanwhile, the net flow of overseas investors into Indian equity market has more than halved during the period. Foreign institutional investors (FIIs) have made net investments of $3.27 billion (Rs 17,157 crore) in H1FY14 as compared to $7.27 billion (Rs 39,742 crore) net inflow recorded in the same period last year.
Outlook
Interest rate sensitive sectors mainly banking and realty have fallen sharply after the Reserve Bank of India (RBI) unexpectedly raised the policy rate by 0.25 percentage points to 7.5% in a bid to control inflation and lingering concerns that high consumer price inflation may prompt RBI to raise policy rates again.
Analysts said that the interest rate sensitive sectors were hit hard after RBI’s stance on interest rates as a higher cost of credit would reduce their revenue.
The BSE Realty index was the top loser, cracking 34%, while banking index Bankex slipped 16% during this period. Capital goods and power index were down 15% and 7.5%, respectively.
State-owned banks like Dena Bank, Union Bank of India, Bank of India, Canara Bank, Andhra Bank and Union Bank of India have seen their market value declined by over 40% each on concerns of rising bad loans.
Meanwhile, the net flow of overseas investors into Indian equity market has more than halved during the period. Foreign institutional investors (FIIs) have made net investments of $3.27 billion (Rs 17,157 crore) in H1FY14 as compared to $7.27 billion (Rs 39,742 crore) net inflow recorded in the same period last year.
| SECTORAL PERFORMANCE | |||
| Indices | 28/03/2013 | 30/09/2013 | %chg |
| GAINERS | |||
| Healthcare | 8,008.1 | 9,463.8 | 18.2 |
| FMCG | 5,919.2 | 6,838.0 | 15.5 |
| IT | 6,885.5 | 7,839.3 | 13.9 |
| Auto | 9,994.2 | 10,996.6 | 10.0 |
| LOSERS | |||
| Realty | 1,780.1 | 1,170.3 | -34.3 |
| Consumer durables | 7,094.6 | 5,773.0 | -18.6 |
| Bankex | 13,033.4 | 10,964.2 | -15.9 |
| Capital Goods | 9,017.6 | 7,706.5 | -14.5 |
| Source: BSE | |||
|
Data complied by BS Research | |||
Outlook
Going ahead, there are no major macro events domestically. Going by the macro trends, results of domestically – oriented companies are expected to remain subdued. Markets will also watch closely the developments on the US debt ceiling issue and the subsequently the US Federal Reserve’s decision to taper its bond buying plan.
“While it is widely expected that, more time will be borrowed to discuss the spending cuts, concerns may linger on the potential impact of any spending cuts on the US economy,” says Dipen Shah, Head- Private Client Group Research, Kotak Securities.
However, stocks from the health care, fast-moving consumer goods (FMCG), information technology (IT), automobiles and telecommunications have outperformed the market by recording handsome returns, as investors turn to safe-haven defensive stocks. The BSE, FMCG, IT and auto sector have outperformed the market, appreciating more than 10% each since April 1.
Among individual stocks, Sun Pharma, Dr Reddy’s Laboratories and Lupin from pharma, Britannia Industries, and GSK Consumer from FMCG, Reliance Communications and Idea Cellular from telecom, Tata Motors and Eicher Motors have rallied more than 24% each over the past six months.
Jyotivardhan Jaipuria, managing director and head (research) at Bank of America-Merrill Lynch continues to favour global plays like information technology (IT) and pharma over domestic plays given that rate cut expectations in the market will be further toned down.
“Telecom remains another over weight for us and we play a better monsoon demand through autos. Given the delay in macro recovery and demand destruction, we do not expect a material pick up in corporate earnings. While be believe margins would likely stabilize but it is the poor sales growth which would result in a tepid recovery in profit growth,” he adds.
It is undisputed fact that the macro fundamentals of the economy are out of shape hence markets have underperformed. Defensive sectors were holding on for the simple reason of high FII holding in these stocks. FII were holding on the hope of uptick in economy, says Kishor P. Ostwal, CMD, CNI Research Ltd.
The defensive sectors may hold only till the time revival happens in the economy. The revival will pep up beaten down stocks for value buying propositions. Any such opportunity could be coming only from booking profits from defensive sectors as no fresh inflow is expected till elections, he adds.
| STOCK PERFORMANCE | |||
| Company | 28/03/2013 | 30/09/2013 | %chg |
| GAINERS | |||
| Reliance Comm | 64.75 | 146.80 | 126.7 |
| United Spirits | 1218.05 | 2538.19 | 108.4 |
| Idea Cellular | 85.35 | 168.25 | 97.1 |
| HCL Techno | 577.29 | 1088.30 | 88.5 |
| Britannia Ind | 475.95 | 823.55 | 73.0 |
| LOSERS | |||
| MMTC | 760.65 | 48.35 | -93.6 |
| Financial Techno | 974.70 | 141.10 | -85.5 |
| Gitanjali Gems | 347.75 | 55.45 | -84.1 |
| Hindustan Copper | 263.05 | 62.95 | -76.1 |
| MCX | 1284.15 | 382.05 | -70.2 |
| From BSE-200 companies | |||
