Private banks drove the rally in the banking space that was among the top performers in the week gone by. Strong performance from index heavyweights HDFC Bank and ICICI Bank propelled the sector, Abhishek Chinchalkar, Head of education at FYERS, tells Moneycontrol’s Kshitij Anand in an interview.
Q) A stellar week for Indian markets with both the Sensex and the Nifty rallying more than 3 percent each. What led to the price action on D-Street?
A) Indian stock markets ended on a firm note on October 1 in what was a holiday-shortened week. The market took various positive cues:
Reserve Bank of India (RBI) announced that India’s current account balance (CAB) recorded a surplus of $19.8 billion (3.9 percent of GDP) in the June quarter of FY21, up from the surplus of $0.6 billion in the preceding quarter (Q4FY20), on the back of lower trade deficit.
Unlock 5 guidelines for the opening of economic activity in hotel, hospitality and entertainment sectors.
India’s manufacturing sector activity improved for the second straight month in September and touched an over eight-and-a-half-year high supported by accelerated increases in new orders and production.
The headline seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) increased from 52.0 in August to 56.8 in September, the highest since January 2012.
These cues pushed the Nifty above its crucial 11,400-mark.
Technically, the Nifty formed an Inside Bar pattern, which suggests at indecisiveness on part of the bears, who were in control of the markets for most of September. The recovery last week was primarily driven by banking stocks.
The Bank Nifty index not only gained 6 percent during the week but also managed to close above the previous week’s high. This comes on the back of four consecutive weeks of bearish candles, during which each high was below the prior week’s high and each low was below the prior week’s low.
The strong performance by banking stocks offered a big boost to the markets, which gained over 3 percent for the week. Besides banks, also underpinning the markets were stocks from the media, auto and metals space.
Q) Small and midcaps also rallied by over 3 percent each in the week gone by. Is it the liquidity wave that is carrying all boats higher or are investors building something positive amid Unlock 5.0?
A) Broader indices performance continues to improve, with many sectors participating in the rally. Since the release of the SEBI circular on asset allocation of multicap mutual funds, investors have opted for small and midcap stocks on expectations of mutual-fund flows.
Many sectors and stocks affected due to the coronavirus pandemic and ensuing lockdowns are finding favour among investors. The latest unlock 5.0 guidelines extended support and provided respite to media companies such as Inox and PVR as well as to the hotel and hospitality sector stocks such as Speciality Restaurants, Jubilant FoodWorks, etc.
As a result, it wasn’t surprising to see media being the top-performing sector last week, gaining over 7 percent.
Q) In terms of sectors, banking led from the front, followed by consumer durables and auto – what led to the price action?
A) The banking sector was among the top-performing sectors in the week gone by. Within banks, private banks were the main drivers behind the rally, led by a strong performance from index heavyweights HDFC Bank and ICICI Bank.
The rally was primarily due to expectations of positive news with regards to interest waiver and interest on interest waiver cases being heard in the Supreme Court.
Also, to take advantage of the upcoming festive season, banks are providing cheaper loans and aggressively offering EMI facilities to consumers for purchasing vehicles as well as consumer appliances. These factors have underpinned banks to recover from the recent troughs.
Meanwhile, auto stocks also fared well, with the Nifty Auto index gaining almost 4 percent. Driving the rally among auto stocks was robust monthly auto numbers for both 2-wheelers and 4-wheelers.
The numbers showed remarkable improvement on a month-on-month basis (MoM), with Maruti numbers rising 30 percent MoM, Hero Motors rising 17 percent and TVS Motors rising 14 percent MoM.
Also, ahead of the festive season, due to various discounts and concessions offered by consumer durable companies, consumption is expected to increase.
Such expectations have offered a strong boost to consumer durables stocks, lifting the BSE Consumer Durables index almost 6 percent over the week. Moreover, the index has also registered its strongest weekly closing since the week of March 9.
Q) Laurus Labs, Birlasoft, IndiaMart Intermesh, Persistent Systems, Adani Green and Firstsource Solutions rose more than 100 percent in the September quarter. Will the momentum continue?
A) Over the last six months, the aforementioned stocks have rallied stupendously. Now that the quarterly results are a couple of weeks away, the focus will be on their earnings growth. As most of the positives have already been priced in, any disappointment in earnings could cause the stock prices to come under pressure.
Hence, those who are holdings these stocks from lower levels and making strong gains could either consider booking profits or tighten the stop losses.
At these levels, risk management would be of utmost importance. The momentum can continue but we would advise caution and close monitoring of the price in the short term.
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