Markets Driven Higher This Week, After Series Of Events

This week was majorly driven by a series of events which finally helped the market to close on a positive note. Both the benchmark indices closed higher by more than 1.5 per cent. The week started with the wholesale price index (WPI) numbers which came in at 6.89 per cent for the month of March 2012, just under the RBI projection of 7 per cent for FY12. The next day i.e. Tuesday was when the RBI announced its monetary policy, spurring hopes about a turnaround in the economy.

The RBI governor sprung a surprise by reducing the repo rate by 50 basis points to 8 per cent which was higher than the market expectation of 25 basis points while some analysts had predicted that there would be no change. It stated in its report that ‘inflation still remains sticky and above the tolerance level’. This was undoubtedly proved on the next day as the consumer price index (CPI) for March came in at 9.47 per cent on the back of the higher prices of food and vegetables.

The week also had some of the major companies like HDFC Bank, HCL Tech, ACC, Ambuja Cement, etc reporting their March quarter results, thus leading to sharp movements in some of the counters. The results of HDFC Bank were in line with the street expectations with the bank posting a robust performance. For the March quarter its net profit increased by 30 per cent to Rs 1,453 crore while for FY12 its profit jumped by 31.60 per cent to Rs 5,167 crore. This led the stock to inch higher and touch a 52-week high.

After the disappointment that crept in from the results of Infosys last week, its peer HCL Tech brought about some cheer with a good performance, thus driving home the point that Infosys’ issues may not be applicable to the industry at large. In dollar terms HCL Tech’s bottomline posted growth of 8.6 per cent to USD 121.1 million on a sequential basis.   
 
On the global front, the US markets, especially Dow Jones and S&P 500, closed in the green zone while Nasdaq closed marginally in the red. Meanwhile, the European markets rounded off on a mixed note with FTSE and DAX closing higher by more than 1 per cent while CAC closed in the red with a dip of almost 0.50 per cent. Most of the developed markets showed some uptrend as investors across the developed world hailed the International Monetary Fund’s comments on global growth and on the back of speculation that the European markets will overcome their sovereign debt crisis.

Back home, rate-sensitive sectors like auto and banking closed higher in the green zone. The auto index was at the forefront, closing higher by almost 6 per cent. Metals, FMCG, healthcare and the Bankex closed higher in the range of 1.39 to 3.33 per cent. Oil & gas, power and capital goods were the only sectors that closed in the negative territory.

Among the individual stocks, Aurobindo Pharma was among the leading gainers, up by 14 per cent to Rs 133.15. Coal India closed the week 7.34 per cent higher at Rs 362.55 as the company has not signed any FSAs and has also said that its e-auction coal will remain available at the current level. Other stocks like those of MRF, Godrej Consumer Products, Tata Motors, HPCL, United Sprits, etc closed the week higher in the range of 6 to 11 per cent.

On the other hand, Manappuram Finance continued its losing trend and was one of the biggest losers, down by 10 per cent to Rs 29.80. Investors sold off heavily due to the RBI’s new policies for loan against gold. The company may find it difficult to grow at a good pace going ahead. Areva T&D and BHEL closed the week lower by 7 and 5 per cent respectively over the fear that most of the orders have been lost to low-cost Chinese manufacturers and that Indian companies are operating at a very low net profit margin level.

Further, after market hours on Friday, Reliance Industries, one of the largest companies by market capitalisation, posted dismal March quarter numbers. On a YoY basis the topline of the company increased by 16 per cent to Rs 87,833 crore while the bottomline de-grew by 21 per cent to Rs 4,236 crore. This was on the back of lower production from its KG D6 basin and due to weak refining margins.  

One has to watch out for stocks like Ultratech Cement, Bajaj Corp, Petronet LNG, Sesa Goa, LIC Housing, Wipro, Strides Arcolab, Biocon, Yes Bank, Axis Bank, ICICI Bank, etc as one can foresee volatile stock price movement in the above counters.

In conclusion, we expect the market to remain volatile for the next week as it will take cues from the result season. One has keep a close track of stocks which are going to announce their March quarter results since the management guidance will provide cues for the stock as well as for the sector. We advise investors to remain cautious and adopt a ‘wait and watch’ approach.