Midcap outperforms Sensex, Nifty ends below 9650; IT bleeds further, pharma shines
Equity benchmarks closed marginally lower amid volatility throughout the session on Thursday, after investors digested RBI policy. They cautiously awaited UK exit polls, ECB rate decision and former FBI Director James Comey’s testimony due later today.
The 30-share BSE Sensex settled trade at 31,213.36, down 57.92 points while the 50-share NSE Nifty slipped 16.65 points to 9,647.25 after gyrating in a range of around 50 points.
“Markets will take cues from the global developments in the coming session. Volatility will remain high, as indices are trading at record high and hence, traders should remain cautious and selective in stock picking,” Jayant Manglik, President, Retail Distribution, Religare Securities said.
Sanjay Shah of Morgan Stanley said although the market may witness volatility in the near-term due to global events, the long-term India story still remains very strong.
Implementation of GST could cause short-term disruption, according to Shah. He feels valuations are not cheap but against the background of broader market revenue growth starting to accelerate, people are willing to take that risk in their stride.
The BSE Midcap and Smallcap indices outperformed benchmarks, up 0.2-0.3 percent despite the balanced market breadth. About 1,357 shares declined against 1,326 advancing shares on the exchange.
Markets in Europe were mixed as voting for general election was underway across the UK and ahead of European Central Bank monetary policy review due later today. France’s CAC and Germany’s DAX were up nearly half a percent while Britain’s FTSE was lower at the time of writing this article. Asia ended mostly higher, with China’s Shanghai and Hong Kong’s Hang Seng up 0.34 percent each.
Back home, technology, FMCG, oil and select banks stocks were under pressure whereas healthcare stocks outperformed smartly, followed by HDFC group stocks.
The Nifty IT index was down 1.4 percent on top of 1.9 percent fall in previous session due to pricing concerns.
TCS tanked 3.6 percent as Nomura downgraded the stock on expensive valuations. The research house expects lower growth in FY18 against FY17, given weak exit growth of 5.8 percent YoY, steep CQGR requirements for matching FY17 growth in FY18 across a lot of segments and caution on retail/telecom/healthcare segments on weak client financials & slower deal translation. Plus, margin risks and threat of US immigration tightening remain, it feels.
Infosys was down 0.5 percent. Goldman Sachs reiterated sell rating on the stock. Infosys’ high exposure to a shrinking application services business amid a shift to the cloud, low penetration in digital services and high vulnerability to potential changes in H1-B visa rules will remain key headwinds, according to the research firm.
Steel stocks were in action today as CLSA sees potential for Indian steel valuation multiples to rerate, citing confirmation of anti-dumping duties for the next four years and likely multi-year tightening phase in Indian steel demand-supply given lack of new capacity additions.
Tata Steel gained 1.6 percent as the research house retained buy on the stock with increased target price at Rs 710 while JSW Steel rose 1.9 percent as CLSA upgraded the stock to buy from outperform with increased target price at Rs 300.
Healthcare stocks saw hefty buying due to attractive valuations. Sun Pharma and Dr Reddy’s Labs rallied more than 3 percent while Cipla and Lupin were up over a percent.
HDFC was the leading contributor to Sensex’ gains, up 2.3 percent. HDFC Bank was up 0.3 percent as Goldman Sachs said India’s largest private sector bank by loans should see its market capitalisation rise to more than USD 100 billion by FY20, compared to it taking two decades to cross USD 50 billion.
GAIL India shares lost 3.4 percent after Motilal Oswal downgraded the stock to sell, citing likely threat of losses from its US contracts. The research house expects 11 percent downside in the stock price at Rs 357 (target price), saying the state-owned gas distribution company may face challenges to find customers for the 5.8mmtpa import contracts it has signed with US companies.
Tata Motors was up 0.6 percent as brokerage houses maintained their positive stance despite tepid Jaguar Land Rover sales growth in May. While staying overweight on the stock with a target price at Rs 588, Morgan Stanley believes that as the new Discovery ramps up over the next couple of months and Velar retail sales commence from September, sales momentum will improve as well.
Among others, ICICI Bank, Asian Paints, Reliance Industries, Hero Motocorp, L&T, Infosys and HUL were down 0.5-1.5 percent.
In the midcap space, Bhushan Steel, Biocon, Ashok Leyland, Hindustan Zinc, Ramco Cement, ABB India, KPIT Technologies, MRF and JSW Energy gained 2-4 percent whereas HDIL, OBC, Syndicate Bank, Jaiprakash Associates, Petronet LNG, Oil India, IOC, Allahabad Bank and Bharat Forge fell 2-5 percent.
