Mid Cap And Small Cap Indices To Outperform
The way Indian equity indices are soaring it seems that the markets are defying all laws of gravity. Leading indices continued upward march and closed at life time high levels. The up-move was so broad based that there were around 75 stocks that touched respective all-time high levels. While the Sensex closed at 26420.67 (Up 30 points) the Nifty closed at 7897 (up 23 points).
If we take a look at the factors that actually guided the rally, foremost reason seems to be declining crude prices. With most of the geopolitical concerns fading away the global crude prices have been on a declining trend. Rather the downside movement has been quite fast and the crude prices have touched multi month low of USD 102 per barrel. The scenario is such that crude prices are now trading even below the 200 DMA. With India being a net importer of crude and crude derivatives forming a majority part of raw materials there seems to be a positive impact on the Indian equities. Further with lower under recoveries the Oil & Gas companies are likely to be major beneficiaries. It is no wonder the oil marketing companies witnessed an up move on the bourses.
Apart from the Oil marketing companies, automobile companies also witnessed a good buying interest. FIIs have been on a buying spree in the Indian equities and hence have supported consistent spurt in Indices. There is renewed optimism about the Indian equity markets.
As we suggested the rally was broad based and it stands vindicated from the fact that mid cap and Small Cap indices are witnessing strong traction. While the benchmark indices only moved by 0.10 the mid cap and small cap companies surged more than 1%.
On the global front, U.S. stocks closed on record highs, with the Standard & Poor’s 500 Index rebounding at the fastest pace since February, as concerns over global crises give way to optimism that central banks will continue to accommodate a recovering economy. Reports suggested that, more than USD 710 billion has been restored to American equities in the past month and the S&P 500 is within 0.3 percent of an all-time high amid bets that the Federal Reserve will leave interest rates near zero for longer even as economic growth shows signs of accelerating. The U.S. equity benchmark added 0.5 % to 1981.60 yesterday. Stocks rallied as retailers led gains on better-than-projected earnings while data showed inflation pressures remain limited and housing starts jumped. The Nasdaq Composite added 0.4 %, its fifth straight day of increases, to the highest level since 2000. The Dow Jones Industrial Average rose 80.85 points, or 0.5%, to 16919.59, still 219 points from its record. As on the data front, US inflation weakened to the slowest pace in five months in July 2014, holding below the Federal Reserve’s target. Minutes of the Fed’s July 29-30 meeting, when the stimulatory bond-buying program was reduced by USD 10 billion for a sixth time, are released yesterday and Fed Chair Janet Yellen will speak to global central bankers later this week. Bloomberg reported, Yellen who has said key rates will stay low for a considerable time after the conclusion of asset purchases, will speak on labor markets August 22 at the Fed Bank of Kansas City’s economic symposium in Jackson Hole, Wyoming.
As regards the leading Asian indices, most of the equity indices look short changed from yesterday levels. We are of the opinion that some amount of consolidation is happening after the consistent up-move. The Nikkei is trading marginally in red with loss of 13 points (0.08%). Hang Seng and Shanghai composite are also trading with Marginal declines of 0.06% and 0.27% respectively. In line with its peers SGX Nifty is also trading in red with loss of 15 points (Down 0.20%). We feel, Indian equities are likely to open on a flat note as some consolidation may happen after consistent up-move. However the mid cap and small cap indices are expected to outperform the broader indices.