Defensive Sectors Have Gained Momentum

Indian equity markets traded with much optimism before the biggest announcement of the year – Union Budget 2018. The key benchmark indices showed strong momentum even as the concerns on valuation remained. The Economic Survey highlighted, once again, the strength of the Indian economy and showcased rising exports along with the improving macroeconomic indicators. 

Sensex was up by 4.13 per cent and Nifty gained 3.62 per cent, thereby trading in line with the major global indices. The movement in small-cap and mid-cap indices depicted profit-booking, while investors showed preference for IT stocks. The Small-cap index was down by 4.58 per cent, while the Mid-cap index was down by 2.31 per cent. The Auto index managed to close down by 0.65 per cent. Metal, Power and Realty indices showed weakness, declining by 1 per cent, 3.55 per cent and 4.87 per cent, respectively. The IT index was the best performing sectoral index which managed to gain 10.24 per cent in the past couple of weeks. Bankex gained 5.65 per cent, while the FMCG index was up by 0.71 per cent. 

The global markets gained ground in the last couple of weeks with Hang Seng leading the list of gainers. Hang Seng was up by 4.95 per cent in the past couple of weeks. Dow Jones Industrial Average (DJIA) was up by 2.47 per cent, while S&P 500 was up by 2.42 per cent. Nasdaq managed to outperform DJIA and S&P 500 and delivered 3.40 per cent returns. The European markets underperformed the global equity markets with FTSE 100 being the worst performing European index. DAX and CAC40 managed to remain in the green, closing up by 0.71 per cent and 0.08 per cent respectively. Asian markets traded mixed with Hang Seng and Shangai gaining in the past couple of weeks even as Nikkie traded weak. Nikkie was down by 0.10 per cent and Shanghai was up by 2.74 per cent. 

The FIIs remained net buyers to the tune of Rs.9003.99 crore in past couple of weeks even as DIIs were net sellers in the market to the tune of Rs.1887.67 crore for the period under consideration. 

Crude oil prices climbed down by 2.7 per cent in past couple of weeks, while the gold prices were up by 3.5 per cent. 

The rich valuation in the mid-caps and small-caps have prompted investors to book profits in the space and there is a visible preference to the defensive sectors such as IT and pharma in the recent trading sessions. The momentum in these sectors may continue in the coming days even as the overall long term bullish trend remains intact for the markets.

Going forward, the markets will digest the budget news and will shift focus on earnings for Q3FY18. The Q3 earnings are expected to be robust when compared to the Q2 earnings and the stock prices will adjust in line with the earnings..