India Markets Weekahead: Spring clean your portfolio and buy pedigree stocks

May 3, 2015

(Any opinions expressed here are those of the author and not necessarily those of Thomson Reuters)

Markets fell for the third straight week with the Nifty losing 1.49 percent to close at 8,181. Sentiment remained cautious due to uncertainty over MAT, disappointing earnings, forecast for a weak monsoon and slow pace of reforms on the ground.

The surge in crude prices to a four-month high and sudden weakness in the rupee also added to market worries.

A broker laughs while speaking to a colleague, as they trade on their computer terminals at a stock brokerage firm in MumbaiWeak first quarter GDP data spooked the IT sector, and mid-cap IT stocks were particularly weak. KPIT Technologies plunged 32 percent, followed by Hexaware and Geometric due to disappointing earnings. Rolta continued to reel over Glaucus Research’s “strong sell” recommendation.

Pharma stocks exhibited exhaustion as big brokerages suggested booking profits in the overvalued sector, and Wockhardt turned specifically weak due to U.S. FDA concerns, falling about 25 percent during the week. Sun Pharma continued to be lacklustre as most of the outstanding demand for its shares was satiated by Daiichi Sankyo when it sold its entire holding last week.

Among other results, ICICI Bank disappointed on asset quality but the stock managed to bounce back. Axis Bank met expectations while Maruti stunned the street with better-than-expected numbers, which was followed up with impressive April sales, especially in the entry-level segment.

Telecom stocks declined as lower roaming rates were announced by the operators to comply with TRAI guidelines. The draft consumer protection amendment affecting high data charges beyond plan usage affected sentiment in both Bharti Airtel and Idea Cellular. Oil marketing companies could see a minor boost on Monday as petrol and diesel prices were raised substantially over the weekend.

FIIs continued to be sellers to the tune of about $500 million as it seems the clarification regarding MAT came a bit late in the day and fell short of expectation.

Events to watch out for next week include the HSBC Markit Manufacturing PMI as well as Services PMI. PMI data normally doesn’t affect the mood in the market, but it helps direct analyst expectations.

The government won’t have enough time to push through some of the important pending bills as the budget session of the Lok Sabha would end by May 8, although the Rajya Sabha continues till May 14.

Markets have witnessed a sharp correction of more than seven percent in about two weeks. It’s natural for the markets to bounce back temporarily and we could witness that in the ensuing week.

People walk past the Bombay Stock Exchange (BSE) building in Mumbai May 13, 2014. REUTERS/Danish Siddiqui/Files The mood has definitely changed from “buy on dips” to “sell on rally”, and I would advice booking out, especially in long trading positions. The next couple of weeks would be painfully sideways with a downward bias for broad-based indices which could be dubbed as a consolidation.

Market movement could tire out participants as I expect the mid-cap and small-cap segments to begin the next leg of correction and this could hurt a number of domestic portfolios.

There is still time to exit the surprise multi-baggers of the last few months and look to increase exposure to pedigree names, albeit after a few weeks. Pressure for action could nudge the government to kick-start the economy through infrastructure projects. The government over the weekend announced a 150 billion-rupee ($2.3 billion) road project in the north-east. A flood of such projects would be a booster for sectors involved in infrastructure and that could provide the next big opportunity for investors.

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