Sensex sparkles ahead of Diwali; will Nifty hit 6400?

Moneycontrol Bureau

Dalal Street witnessed cracker of a week aided by better-than-expected September quarter earnings, RBI's short-term rate relaxation, relentless inflow of foreign money and the 30-share BSE benchmark's accomplishment of new milestone of 21,293.88.

Market observers are now focussing on Nifty's moves, which despite closing above the 6300-mark on Friday, first time since November 2010, remains 50 points away from its all-time high of 6357.10 seen in January 2008.
 
The Sensex surged 513.29 points or 2.5 percent to close the week at 21196.81 while the Nifty gained 162.3 points or 2.6 percent at 6307.20, led largely by banks.

BSE Realty, Capital Goods, Metal and Auto indices gained 3.5-4 percent while CNX Midcap Index rose 3.5 percent.

The rally seen until now is also in anticipation of a strong chance of BJP winning elections of 2014, feel experts, but lack of retail participation is the real cause of concern, they add.

They advise investing in fundamentally strong companies and firmly believe IT, healthcare and FMCG - known as defensives - are the next drivers for the market.

Bull markets always climb a wall of worry and right now the market is looking ahead to the election cycle and a new administration; that is why it is powering up, says Ramesh Damani, BSE.

According to him, stronger regulation will be more effective in attracting retail investors to the market, than tax incentives.

Meanwhile, Sanju Verma, group chief executive officer, Violet Arch feels the market is currently polarised between smart money and hot money. She believes that 6400 or 6500, at those levels the market will tire itself out and 6400 looks likely in near term.

However, Raamdeo Agarwal, Joint MD, Motilal Oswal Financial Services sees correction in the middle of November. Now the mood is building up for state election results, he adds.

Nearly Rs 5,000 crore worth of shares were bought by foreign institutional investors during the week while the month gone by saw FII buying of Rs 18,000 crore, highest since February 2013.

Meanwhile, Reserve Bank of India’s second quarter monetary policy review too played a vital role during the week. The central bank cut marginal standing facility rate by 25 basis points to 8.75 percent to maintain liquidity flow for banks.

However, the bank hiked repo rate - at which banks borrow money from it - by 25 basis points to 7.75 percent to combat rising inflation that will remain at elevated level, says RBI governor Raghuram Rajan.

Since the RBI event on Tuesday, banks maintained upward journey with the Bank Nifty rising 3.5 percent for the week. Stable numbers from banks like Bank of India, Allahabad Bank and Bank of Baroda raised hopes that worst may be over for PSU banks for the time being. So investors may be expecting the same performance from State Bank of India that will declare its second quarter numbers in next two weeks. SBI rallied 9 percent this week.

PNB, Bank of Baroda, ICICI Bank and IDFC were the major gainers last week, soaring 10-15 percent while Indian Bank and OBC among midcaps surged 22-26 percent.

Monthly auto sales that announced on Friday were largely on the positive side. M&M’s tractor performance remained robust during October while Hero Motocorp reported record sales of 6.25 lakh units in the month gone by.

Maruti Suzuki surged more than 8 percent this week after its higher-than-expected numbers in second quarter, though its October sales performance was in-line. Escorts shot up 11 percent on jump in October tractor sales.

Among other earnings, Bharti Airtel (up 7 percent) surprised the street with September quarter revenues and margins, but its profit was impacted by higher forex loss. Ranbaxy Labs disappointed the street with reporting huge loss and sharp fall in margins.

In the FMCG space, Dabur posted good numbers while Marico reported sluggish topline growth, but maintained margins. Jubilant Foodworks lowered its FY14 guidance for same-store sales growth and margin saying environment is very challenging and volatile. Titan Industries’ numbers were muted but steady given current economic environment.

ITC was the major loser among frontliners, falling 3.5 percent followed by Power Grid with 2 percent gains.

In the midcap space, BF Utilities surged 80 percent after getting clearance from Karnataka High Court for Nandi Infrastructure Corridor Enterprises project. Dishman Pharma gained 22 percent and AIA Engineering rose 11 percent post strong earnings.

Important quarterly earnings to watch out for the next (truncated) week are PSU banks (Indian Bank, PNB, Dena Bank, United Bank), capital goods (BHEL, ABB, Thermax, Voltas, Crompton), airline (SpiceJet), auto (Ashok Leyland, Eicher Motors) and IT (Tech Mahindra).

The market will be shut on Monday for Diwali festival.