Mumbai: The 30-stock Sensex, the bellwether index of the Bombay Stock Exchange, is just slightly ahead of its October peaks, but the stocks keeping the momentum alive now are a different set from then.
Graphic: Ahmed Raza Khan / Mint
Information technology (IT) and auto stocks have been major gainers since October, reflected in the indices for those sectors, but analysts say bank stocks could be back in vogue.
On Monday, the Bombay Stock Exchange’s Bankex, an indicator of bank stocks, gained 2.41% after HDFC Bank Ltd and Axis Bank Ltd on Friday reported better-than-expected results for the quarter ended 31 December.
The Monday gains were led by Allahabad Bank, which rose 4.83% to close at Rs140.05 on BSE. HDFC Bank, India’s second largest private sector lender, closed 4.53% higher at Rs1,767.55. The bank’s net profit for the December quarter grew 31.6% while Axis’ profit increased 30.97%.
The Sensex closed 0.49% up at 17,641.08 points on Monday, higher than the 17,326.01 points it reached on 17 October before a small correction and subsequent rebound.
“The (banking) sector is looking attractive if you look at the long term and also based on economic growth,” said Ajay Parmar, head of institutional equities at Emkay Global Financial Services Ltd. “However, you should watch out for NPAs (non-performing assets).”
IT stocks, boosted by quarterly earnings that beat estimates, are also trading higher, with the BSE IT index 23.87% above its 17 October position.
Since then, Tata Consultancy Services Ltd, India’s largest software exporter, has gained 31.37%, and Wipro Ltd, 30.29%.
“In our view, Indian IT is the best play on global recovery,” Nitin Mohta and Atul Soni of Macquarie Bank Ltd wrote in a 13 January report on the earnings of Infosys Technologies Ltd, whose profit for the December quarter dropped 3.6% but beat analysts’ projections. “Positive quarterly results point to demand recovery that is already under way.”
Infosys also reported a 6.6% year-on-year growth in dollar revenue, significant because the US accounts for around 60% of the revenue for Indian IT firms.
TCS also beat expectations when it registered a profit of Rs1,824 crore for the quarter ended December, an increase of 34% over the same period in the previous fiscal year.
While the rally has been strong for IT stocks, analysts say most of the positives have already been priced in at this point, especially with some of the large caps trading at multi-year price-earnings highs.
Another set of stocks that has performed well is healthcare, with the BSE index in that sector gaining 15.04% in the period under review.
“There was some kind of clarity about regulations in that sector like the US healthcare bill,” said Vinod Sharma, head of private broking and wealth management at HDFC Securities Ltd.
He added Indian pharma companies will benefit from a “fallback on generic drugs”. Generic drugs are non-patented versions of existing drugs and many Indian pharma firms are known for low-cost production of such medicine.
The US government is currently legislating a bill to reform the $2.3 trillion (Rs104.65 trillion) healthcare system there, primarily to reduce the cost for consumers. Low-cost generic drugs are expected to play a role in cutting the cost of health care.
Sun Pharmaceuticals Ltd, the only such company in the Sensex, has gained 11.16% since October.
The top Sensex gainer during this period has been Tata Motors Ltd, rising 40.16% as it led an improvement of 13.99% for the BSE auto index. Mahindra and Mahindra Ltd, India’s top tractor maker, also increased as demand grew and many auto firms beat analysts’ earnings estimates for two quarters in a row. This week, Bajaj Auto Ltd reported a near threefold rise in net profit.
At the other end of the scale are realty stocks. Real estate firms firms have been among the laggards, with BSE’s realty index losing nearly 13% since October. DLF Ltd, India’s largest realty firm, has lost 16.12%.