Weekly wrap: Sensex, Nifty up 2%; small-caps rage on

Both Sensex and Nifty continued on their upward trajectory that started last week from lower levels. Sensex and Nifty added 2.2-2.3 percent over the week to end at 28,879 and 8,780 levels respectively. The sentiment turned positive after the ratings agency Moody's upgraded India's ratings outlook from 'stable' to 'positive' and said there could be a ratings upgrade too in the coming months, if policy announcements by the government are actually implemented.

Top Nifty gainers during the week which grew between 5-8 percent were: Reliance Ind, PNB, Dr Reddy's Ltd, Coal India, M&M, Sesa Sterlite, Tata Steel, HUL, NTPC and NMDC.

Mid-cap and small-cap stocks outpaced the gains in blue-chips, which was also reflected in the CNX mid-cap index which surged 3.5 percent towards its all-time high level during the week. Meanwhile, BSE small-cap index rose 6.3 percent.  

Among top mid-cap movers that gave returns to the tune of 21-91 percent were: Ess Dee Aluminium, Plethico Pharma, Helios, Matheson, HDIL, Network18, Nucleus Software, Intellect Design, Vakrangee, India Cements and Zee Media.

Midcaps and small-cap have witnessed a stellar rally but TS Harihar of HRBV Client Solutions warned investors against a probable correction. "I am a little cautious on midcaps at these levels. There are two things that would work against midcaps. One is if you look at the estimates for the overall universe in Q4, in a best case scenario Q4 could actually be anywhere between -5 percent to +5 percent. In this kind of a scenario I won’t be too positive on midcaps,” he said.

Investors will now be fixated with the fourth quarter corporate earnings beginning in the truncated week ahead. Experts however aren't expecting the earnings to be blockbuster in terms of growth and expect the consolidation to continue in the absence of any major triggers.

"After a sharp recovery during last two weeks, the market will look at consolidating its gains unless some major triggers come in from the global market," said Anil Ambani of IIFL.

Aditya Narain of Citigroup in a note said, “India's earnings are floundering; at about 0 percent growth in Q4FY15 and with no top-line support, they need a lifeline.”

“While it might not be the deep end of the pool, pick-up from -7 percent in Q3FY15, FY15 should average 12 percent growth. The biggest earnings dip is in global commodity cyclicals,” he added.

He further said the brokerage believes earnings do matter and are key to material market moves. That said, with lower interest rate expectations getting more entrenched, there's enough to support the market. But for a leg up, management guidance/ earnings need to better expectations, he added.

“We stay positive and maintain Sensex target of 33,000 by December 2015,” said Narain.

FII investing trend is in tandem with global brokerages' views that Indian market will continue to outperform its emergning makret peers. During the week FIIs poured in Rs 795.42 (ex- Friday) while domestic institutions bought stocks worth Rs 379.24, according to SEBI data