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BW Businessworld

Good Times For Equities Market

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Market mandarins may call the rally broad-based, but a near-35 per cent gain in equities since the beginning of the year warrants a few exceptional performances. While most sectors contributed to the rally, banks, automakers, drug manufacturers, cement producers and infrastructure companies were the ones which powered benchmark indices to unprecedented levels. 
“Even defensives gained steadily,” says S. Ranganathan, head of research at LKP Securities. 
BSE sectoral indices grouping consumer durables, capital goods, auto and healthcare shares have all gained more than 45 per cent since January. Widely held banks (grouped in BSE Bankex) and low-float consumer durable firms (clustered in BSE Consumer Durables Index) gained 53 per cent and 73 per cent, respectively, during the period. BSE Capital Goods Index notched up 56 per cent gains since January.
“Even advance/ decline ratio looked good throughout the year. Investors are betting big on economic recovery; they expect 6 per cent-plus growth,” says Ranganathan.
Apart from sectoral momentum, foreign inflows have helped the markets yield gains. As per the scrolls of the National Securities Depository Limited, foreign portfolio investors have put in close to Rs 85,000 crore since January. According to equity researchers, a considerable chunk of these inflows has gone into large-cap and frontline mid-cap stocks.
Over the last few months, domestic institutional investors, too, have begun deploying more funds in the equities market. This has helped equity funds generate appreciable one-year returns, with large-cap, and mid and small-cap funds returning an average of 38 per cent and 77 per cent, respectively.
“As the rally was not only limited to blue-chip stocks (and was broad based), small- and mid-cap funds outperformed their large-cap peers,” says Hiren Dhakan, associate fund manager at Bonanza Portfolios. “Diversified equity funds repositioned their otherwise large-cap focused portfolios to include more mid and small-cap stocks. This improved their performance. The exceptional performance of mutual funds could be attributed to capital goods, consumer durables, healthcare, auto and banking sectors.” 
In terms of allocation, mutual funds have upped their investments in banks, pharma, IT and engineering companies since last year. As of September-end, funds hold banking and IT shares worth over Rs 86,000 crore. 
Gammon Infra, IDFC, Ashok Leyland, and Federal Bank are among the stocks being added to fund portfolios whereas NTPC, NMDC, Bharti Airtel, and Jaiprakash Power Ventures are being sold in chunks by fund managers. 
Equity analysts expect the Sensex to correct to 27,400-levels, before tipping 29,500 by December-end. 
(This story was published in BW | Businessworld Issue Dated 01-12-2014)