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The recent strength in the stock market, which took key indices to record highs, could be put to test in the days ahead ahead as investors and traders may consider taking home a portion of the gains clocked last week. Nothwithstanding the recent euphoria aided by strong foreign institutional investors (FIIs) inflows, many in the market remain skeptical because the upsides have been driven by sectors such as banking, infrastructure and real estate, whose earnings prospects are still hazy.
Market participants mopped up shares in these sectors last week on hopes a Narendra Modi-led Bharatiya Janata Party (BJP) would lead the next coalition government and announce steps to revive the sagging economy. But, during the fag end of the week, several traders created short positions in banks and real estate as they deemed the recent gains as excessive.
"Markets will not be able to rise much from these levels because FII buying is concentrated on the 'economy' stocks," said said Alex Mathew, head of research, Geojit BNP Paribas Financial Services, referring to the stocks of the capital goods, banking and state-owned companies sectors.
Last week, the BSE Sensex gained about 3.8%. The BSE banking, capital goods and the public sector stocks beat the benchmark index rising 10.4, 8.2 and 7.3% respectively. Profit-booking hit stocks of the investor-favourites technology and healthcare stocks. The BSE IT and healthcare index fell by 4.3 and 2.8%, respectively.
| Events next week | |
| January IIP data | 12-Mar-14 |
| Consumer inflation | 12-Mar-14 |
| Wholesale inflation | 14-Mar-14 |
Foreign institutional investors (FIIs), on their 17th straight buying session on Friday, net-bought equities worth Rs 2,577 crore, increasing their purchase tally in this period to almost Rs9,600 crore.
"In the past few sessions, the size of the buying by the foreign investors had been too large. That typically happens towards the end of a rally," said Nirmal Rungta, director and head (private client group), CIMB Securities. Traders were unwinding long positions and creating fresh short positions in the market late last week, he said.
Shares of mid-cap companies may miss out on the action because of low participation by the high networth individuals, the main investors in the category. March is said to be a quiet month for this category of investors.
Investors will watch a slew of economic readings in the week ahead such as January industrial production (IIP) data and February wholesale and consumer inflation numbers.
Globally, the standoff between Russia and Ukraine is being watched for keenly by the markets. With the Russian government paying no heed to the plans set forth by the US and the European Union, markets continue to remain nervous.
"So far, markets have not reacted sharply to this event. But if things worsen, markets everywhere would be severely impacted," said Tirthankar Patnaik, director, strategist and chief economist, Religare Capital Markets. On Friday, European markets ended down about two per cent while the Us markets ended flat.
