Markets To Sustain Up-ward Momentum
Indian equity indices gained for the fifth straight session on Monday amid encouraging first quarter earnings from index heavyweights Reliance Industries and HDFC. Meanwhile, the broader markets outperformed the benchmark indices with the Small-cap index gaining nearly 1% as foreign institutional investors turned focus to the broader markets where valuations are seen reasonable at current levels. In absolute terms, Sensex gained 73 points to end the session at 25715 and the Nifty added 20 points to close at 7,684.
We have been constantly maintaining our stance that the June quarter results of India Inc are Expected to be better on yearly basis and even on sequential basis. The leading Sensex based companies like Infosys, TCS, Reliance Industries and HDFC have announced the quarterly results that are better than the street estimates. We feel, with leading companies putting strong growth the downgrade of EPS estimates seems to be over and hence this would help valuations look more attractive.
No wonder that even the foreign institutional investors (FIIs) are also on a buying spree. FIIs who have pumped over $12 billion (Rs 70,276 crore) in Indian equities year-till-date (YTD), have increased their stake in more than 150 mid-and small-sized companies during the April - June 2014 quarter. A bulk of their investment, nearly 50% of inflow thus far, has been allocated to the mid-and small-caps in the June quarter.
As far as movement for markets is concerned, we believe, that the new government has a given blue print for the next five years in Union Budget 2014 -15. FY15 may not be the star year with10 percent growth but definitely FY16 and FY17 can be pretty strong for earnings. On a longer time frame, the 20 year growth in Sensex EPS is about 15 percent and last six years we have been at a compound annual growth rate (CAGR) of 8 percent. On revival of the economy, earnings will go above the previous trend. Considering the raft of economic data coming across over the last couple of months like Index of Industrial Production (IIP), export growth, Purchasing Managers' Index (PMI), car sales, two wheeler sales, all suggest positive turnaround.
On global canvas, US equity indices declined, after the biggest Standard & Poor’s 500 Index rally since April, as concern that tension in Ukraine could lead to deeper sanctions kept investors on the sidelines before major companies report earnings. The S&P 500 lost 0.30% to 1,973. The Dow Jones Industrial Average dropped 48.45 points, or 0.28 percent, to 17,051.73. Experts suggest that “The geopolitical situation is an overarching damper on the market and underneath that this week we’re right in the heart of second quarter earnings.
Asian stocks are also trading in green with Nikkei gaining almost a percentage point. Nikkei is up by 0.95% or 141 points to trade at 15357. Hang Seng (up 0.86%) and Shanghai Composite (Up 0.35%) are also trading in green.
We expect Indian equities to continue its up-ward momentum today. The SGX Nifty is trading with gains of 30 points which is indicative of a positive opening for Indian equities as well. Monsoon has revived and quarterly results have been better than street estimates. Both the factors are likely to help the indices move northwards.