Banking all the way

Thu, 9 Sep Closing

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Indian markets carried on with their strong performance, and closed with good gains today. These gains were led by buying in stocks from the banking, engineering, and realty sectors. Stocks from the oil & gas and pharma sectors however closed weak. On the broader BSE, one stock gained for one that closed in the negative.

The BSE Sensex and NSE Nifty closed with gains of around 130 points (0.7%) and 25 points (0.5%) respectively. Midcap and smallcap stocks followed suit, as the BSE Midcap and BSE Smallcap indices closed up by around 0.7% and 0.3% respectively. The rupee was trading at 46.52 to the US dollar at the time of writing this.

Among other key Asian markets, while China closed weaker by 1.4%, gains were seen in Japan (up 0.8%) and Hong Kong (up 0.4%). European markets have opened the day on a positive note.

Banking stocks emerged the best performers today. Leading the gains were heavyweights like SBI, HDFC Bank, and ICICI Bank. Gains in these stocks were led by reports that leading banks are expecting a rise in credit off-take during the second half of the current fiscal. This is expected to happen on the back of several large infrastructure and other capex projects getting finalised during this period. Banks are also seeing credit demand from the retail segment improving during the next few quarters. This is after the sluggishness seen in the past few quarters. As per latest data from the RBI, the increase in total credit for the fortnight ended August 27 was 19.4% YoY. This was 0.75% lower than the growth registered in the previous fortnight ended August 13. Anyways, news of the RBI looking to hand over four new banking licenses in the near term also sparked the markets' interest towards these stocks today.

Stocks from the IT sector closed a mixed bag today. While gains were seen in HCL Tech and Infosys, selling pressure marked trading in Mahindra Satyam and Wipro. Earlier, as a leading business daily reported, IT companies have cited that they are not much concerned about the ban imposed by the US state of Ohio on outsourcing of government projects. This is given that very few Indian IT companies are working on US government projects. Most derive a large chunk of their US revenues from private clients, especially in the banking & financial services space (BFSI). Anyways, these companies are showing some anxiety regarding the general rise in protectionism in the US. And they are trying to handle this concern by looking to set up more delivery centres in the US, hiring local people. We do not see these protectionist measures having a lasting impact on these companies' business, as these are driven more by political considerations.

Select small-cap stocks were on a rampage today. Key gainers from this space included Parekh Aluminex, Oil Country Tubular, Piramal Life, and Jyothy Lab. These stocks, like several others, closed with gains of anywhere between 5% and 15%. Along with midcaps, the small-cap space has seen much activity over the past few weeks. The BSE-Smallcap index is up around 5.4% over the past month. Compare this to the Sensex's gains of just around 2.7% during this very period. We recently heard how brokers, faced with a lull of large-cap buying, are pushing their clients to do greater trading in mid and small-cap stocks. We would advise you to stay away from such tactics. Mid and small-cap stocks are already trading at the high end of their valuation bands. And any investment done in them with a view to make fast money can be highly risky for your overall stock portfolio.