Book Profits On Rallies

Though the recent performance of the markets has been encouraging, there are near-term pressures that would fuel inflation. Now, the markets are expecting to see the budget bring in moves that are likely to boost growth.

Rakesh Goyal
Sr. Vice President
Bonanza Portfolio

Q3FY13 Results Trend

• The results have been better than the estimates and projects improvement in the earnings. Private banks and pharma have shown stability in growth and will attract buying going forward.

Budget Hopes

• We expect that the budget should strike a balance between controlling the fiscal deficit and easing inflation, and may provide subsidies in the relevant sectors to boost demand.

The Indian markets have performed well in the last one year and are showing signs of improvement in the overall economic outlook. However, the recent IIP figures are a concern and the hike in fuel rates will impact inflation in the coming months. Companies are pushing hard to increase their sales and simultaneously maintain the profit margins too. Liquidity in the market is maintained and FIIs continue to put in money, which is positive for the country. The emerging markets have also shown improvement, particularly in the services sector, and the manufacturing segment has also improved, as per recent reports.

The results have been better than the estimates and project improvement in the earnings. In some sectors, though, the topline growth has been affected due to weaker demand. Public sector banks have seen a rise in their NPAs. However, private banks and pharma have shown stability in growth and will attract buying going forward despite the fact that they have already gained in the recent past. Inflation is likely to increase in the coming months given the partial de-regulation of diesel prices, fuel hikes and increasing input costs.

Interest rates are likely to maintain status quo in the near term considering a likely increase in inflation rates. In January 2013, the RBI cut the repo rate and CRR by 25 bps each. We don’t expect a consecutive rate cut in near future given the higher inflation and the past stance of the RBI over it.

The USD-INR managed to protect the crucial support of 53 and bounced back from the given level on February 8, 2013, weighed down by weak economic data and continued dollar demand from oil firms and other importers, as crude oil prices rose to their highest level in four and a half months. Technically, the Indian rupee is expected to trade in a wide range between the 53 to 54.30 levels. 54.30 is the key resistance, and if it is broken, then the pair may test the 55.20-55.60 levels. On the downside, 53 is the key support, and below this, sharp appreciation to the levels of 52 could be seen.

Global factors as well as developments in the upcoming budget shall be the key driving factors for the market. As this time it will be followed by the general elections also, investors in general are quite hopeful for a positive budget that will boost the country’s economy.

We expect that this time the focus will be more on spurring economic growth and taking a step forward with respect to the reform measures taken a few months ago. Infrastructure, insurance and banking are likely to benefit among others. We expect that the budget should strike a balance between controlling the fiscal deficit and easing inflation, and may provide subsidies in the relevant sectors to boost demand.

The global markets are also showing signs of recovery on the economy and earnings front and have a positive outlook in the medium term.

As already mentioned, the banking sector looks promising even at the current prices. HDFC Bank and ICICI Bank are good picks in this sector. In pharma, Lupin and Sun Pharma can be bet upon. As the budget is approaching, much volatility is likely to be seen in the coming month. Investors can diversify their portfolio in a few sectors to reduce market risk. Technically, a major trendline was broken on the Nifty chart last week and the near-term trend has become bearish. Investors can thus book profits on rallies.