Markets end week up; experts say undercurrent still strong

Excerpts from Closing Bell on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

The upside in the equity markets continue. Friday continued to be a positive day for the indices as Sensex ended the day up 94.87 points at 15,103.55 while the Nifty ended up 14.25 points higher to close at 4586.90.

The market's weekly performance was good too: both indices were up about 3% apiece, while the midcaps and smallcaps rose even higher. Sector-wise, metals, capital goods, auto rallied the hardest (the respective indices were up between 7-8%) followed by healthcare, FMCG and realty.

Also read:

Current valuations looking difficult to sustain: Sanju Verma

Mkts end with marginal gains; cap goods, IT, auto up 2-3%

Stocks that rose

Suzlon surged 33% and Unitech was up 23%. Grasim gained 20% on news that L&T was selling its 11.4% stake. Tata Motors and Tata Steel moved up 14%. Cairn was up 12% as crude oil prices neared $70 per barrel.

Among midcaps, Bajaj Hindusthan , Gujarat NRE Coke and Jaiprakash Hydro were up 40% each. Aban Offshore surged 37%. Welspun Gujarat , Satyam , Adlabs and Voltas were up 26-32%. Rolta , TTML and IFCI went up 15-22%.

Market outlook ahead

TS Anantakrishnan, Director of Prime Wealth Management, said even as the market has rallied substantially, it may still have some steam left to take the Nifty to 4,800 levels ahead. He, however, added that he would advise investors to be very stock-specific in their approach.

Anantakrishnan said that the possibility of the Nifty breaching 4,200-4,300 was slim as there was enough money in the market chasing performance. "We have seen the global emerging markets allocation having upped the India exposure. In the pervious year, they were neutral to negative and now they have upped the India exposure," he said. "We have seen 4 billion of cash come into the market as against USD 19 billion that went out last time. So we do not see much downside at this point," he pointed out, adding that while there may be sector rotation in performances, the markets would continue to range at current levels.

"I think it is a natural pause. We are not getting any correction at all and we are seeing a situation where for a few days there is a sideways movement and again there is a bump-up in stocks - if you observe the broader indices: the Nifty and the Sensex," Dipan Mehta, a member of the BSE and NSE, said. "It appears to be a sideways movement on the broader indices but the undercurrent is extremely strong."

Sectors to stay away from

Anantakrishnan said the way shipping stocks had rallied in the recent past on the back of the rise in Baltic Dry Index, it was a little too over-stretched. "Many of the shipping stocks have moved substantially more so than what is warranted in our opinion because even as global trade has started to pick up, it is not to the extent that the price rises warrant," he said. "We advocate a paring down positions in shipping and in many of the other sectors especially metals."

How to approach midcaps

Mehta said many midcaps were still away from their 2008 highs - "these stocks have corrected by anywhere from 70% to 90%," Mehta said, adding, "but if you look at the quantum of appreciation that has taken place over the past two-three months, that certainly causes a bit of a concern and does raise a red flag."

Mehta said that there were still many companies in the midcap and smallcap companies that still traded at 0.5-0.6 times price-to-earnings (PE) ratio. "The valuations are still out of whack. If you stretch the imagination a little bit and see what the real earning capabilities of these companies is, valuations are still quite attractive."

Mehta said that corporate events could be the key to in their fundamentals. "If a midcap company is able to raise a qualified institutional placement (QIP) or get some capital into the company either by the promoters or by the foreign institutional investors (FIIs), it will make a big difference to what profitability it can post."