Weekly wrap: Sensex, Nifty hail FII return, BoJ, Fed moves

Friday witnessed massive gains on bourses after Bank of Japan (BoJ) put the mojo back into stocks globally and on account of short-covering. BoJ unexpectedly announced an expansion in the pace of its quantitative easing program by 30 trillion yen to 80 trillion on Friday. Japan's key index Nikkei hailed the move with 5 percent up-move. Global markets also towed the line; London's FTSE index, French CAC 40 and German DAX rallied 1.1-2 percent higher. Asian markets were led by Japan. Globally, investors now expect Japan and Europe to fill the void in easy liquidity, created by US's exit earlier this week.

Back home, foreign investors re-emerged as net buyers in equities after selling in the past few weeks fretting over what US Federal Reserve's commentary might be on interest rate front. However, Fed in a statement later committed to keep interest rates at record low levels for a "considerable period of time," which spurred a global rally. The US central bank also ended its historic bond buying program citing improved labour market conditions.

"FIIs have bought in quite aggressively in the index Futures. Their position as of now is about USD 1.7 billion, at the start of the October contract it was just about USD 900 million. In fact during the early weeks of October it had come down and thereafter they have really added on a lot. Similarly there was buying even in the underlying cash market yesterday. The Put protection which was about USD 3.6 billion at the start of the month for October remains more or less the same. It is spread quite nicely between 7600 to 8000 contract for Nifty strikes and therefore we believe that the momentum will continue as we head into November now," said Vineet Bhatnagar MD, PhillipCapital.

Also, Fed's hawkish stance on US economy eroded the safe haven appeal of gold and silver, which tumbled to multi-year lows.

Crude oil too continued on its downward trajectory; Brent crude was last seen trading at $85.48 down 0.9% at 1548 hours on Friday.

An improved outlook on US economy had it's rub-off on stocks of IT companies this week, which largely depend on US economy for their exports. Making a comeback, BSE IT index swelled 5 percent on improved sentiment; TCS, Infosys, HCL Technology and Tech Mahindra rallied 4-6 percent.

Market Internals

Top Nifty gainers this week were Cipla, L&T, Infosys, Tata Power, BHEL, Tech Mahindra, IDFC, Tata Steel, HDFC, Hindalco and GAIL, which surged between 6-10 percent.

Shares of realty stocks rallied this week after the government relaxed rules for foreign direct investment (FDI). BSE Realty index hoisted 4.5 percent this week; Sobha Developers, Oberoi Realty and DLF, HDIL rallied between 1-3 percent.

Among key earnings, from the FMCG space HUL, ITC, Nestle and Emami posted mixed September quarter earnings this week.

Credit Suisse thinks FMCG sector is in a sweet spot with an improving growth outlook, easing inputs and benign competitive intensity and hence HUL's personal care business should benefit from all these, valuations leave little room for upside.

HUL's EBITDA margin expanded by 50 basis points (bps) YoY despite a sharp 160 bps fall in gross margins, as advertising spend dipped due to benign competitive intensity. "The fall in gross margins was unexpected and was driven by a low base for raw material costs and higher excise duty. With softening commodity prices now only starting to kick in, we expect gross margins to start improving from Q3," Credit Suisse said in a note.

ITC matched street expectations on profit front but topline and operational performance disappointed. Net profit climbed 8.7 percent year-on-year to Rs 2,425 crore supported by other income and higher revenue. The profit in the year-ago period was Rs 2,230.5 crore.

Among autos, M&M and Maruti posted strong results reflecting an improvement in the demand scenario.

Mahindra and Mahindra (M&M) reported a 4.3 percent decline in standalone profit at Rs 947 crore for the quarter ended September 2014 compared to Rs 989.5 crore in the year-ago period; hit by weak operational performance despite higher other income

"Standalone numbers seem to be in-line with what I was expecting because there was muted growth on both auto and tractor side. So taking the cognizance of that fact, the revenue seems to be in-line with the numbers. However, on the PAT side, it is a beat," said Ajay Shethiya, VP - Auto & Auto Ancillary, in an interview with CNBC-TV18.

Maruti stock touched record high levels at Rs 3332.90 per share, up almost 3 percent intraday on Friday after analysts upped the target price post strong Q2 performance. Maruti Suzuki beat street expectations on Thursday with the second quarter net profit rising 28.8 percent to Rs 863 crore led by other income and higher revenue. Profit in the year-ago period was Rs 670.2 crore.

India's largest telecom operator Bharti Airtel's second quarter profit jumped 24.8 percent sequentially (higher-than-expected) to Rs 1,383.2 crore in July-September quarter, the highest quarterly profit since March 2011. Year-on-year growth in profit was 170.2 percent.

What's next

Economy is yet to match stock market’s stride, show September core sector numbers, released on Friday post market hours. The core sector comprising 8 industries like electricity, steel, cement, coal etc, grew 1.9 percent in September compared to 5.8 percent growth in August and 9 percent in the same period last year. This might give investors a reason to take some profits off the table on Monday.

It's a truncated week as market will remain closed on Tuesday on account of Muharram. A slew of earnings and global cues are likely to dominate the sentiment on local bourses next week.

Investors globally will eye the European Central Bank and the Bank of England's decision on their respective interest rate policies on Thursday.