India Insight

Markets this week: Sensex surges 5 percent on hopes from Modi, ONGC rallies

June 6, 2014

By Ankush Arora and Aditya Kalra

The BSE Sensex ended at a record closing high on Friday, rising 5 percent during the week, as Indian shares rallied on hopes of faster economic recovery after Narendra Modi became India’s prime minister last month.

Markets have high hopes that the new Modi-led government would push for policy reforms and end bottlenecks that have stymied growth in Asia’s third-largest economy.

On Friday, the Sensex hit a new life high of 25,419.14 while the broader Nifty index touched its all-time record high of 7,592.70. Both indexes are now up about 20 percent this year.

The BSE realty and the metals indexes were among the star performers, gaining more than 10 percent each. But smaller stocks outperformed larger peers, building on last month’s rally: the mid-cap index gained 7.5 percent while the small-cap index surged 8.4 percent.

After Modi took charge, several brokerages have revised upwards their Sensex targets, with new estimates ranging from 27,000 points to 100,000 points in the coming months and years.

Here are the top five Sensex gainers and losers of the week:

GAINERS

OIL AND NATURAL GAS CORP: ONGC emerged as the best Sensex performer of the week with gains of 22.7 percent, hitting a life high of 467.95 rupees on Friday. For the year, the stock is now up 61 percent.

Media reports on Friday said the government could decide on a pending gas price hike by the beginning of July. In January, India notified the new gas pricing formula that could double the price of locally produced gas from April 1, but the poll regulator had stopped the government from raising prices until the elections are over.

“We remain positive on ONGC due to likely increase in net realization due to lower subsidy driven by continued diesel price hikes, significant beneficiary of scheduled gas price hike in FY15, attractive valuations,” Motilal Oswal said in a research report on May 29.

On earnings, ONGC last week reported a 44 percent rise in quarterly profit but fell short of expectations, weighed down by subsidies on its crude sales to state-run refiners.

TATA STEEL: Second in the best performers’ list was Tata Steel with gains of nearly 18 percent this week, with metal stocks gaining on the back of positive China factory surveys earlier this week.

The company, which gets at least over a third of its revenue from Europe, benefited after the ECB launched a series of measures to pump money into the sluggish euro zone economy on Thursday. On Friday, the stock touched a high of 568.80 rupees, a level last seen in 2011.

Analysts are upbeat as well — of the 44 analysts covering the stock, 27 had a buy or equivalent rating on the stock, data from Thomson Reuters showed.

HERO MOTOCORP: India’s largest maker of motorcycles ended with gains of 14.5 percent this week at 2682.65 rupees, snapping two consecutive weeks of losses. It had hit an all-time high of 2,775 rupees on May 16.

On Monday, Morgan Stanley upgraded the stock to “overweight” from “equal-weight”, raising its price target to 2,723 rupees from 1,747 rupees. The investment bank expects a turnaround in the two-wheeler sector in fiscal 2015, potentially leading to stronger earnings.

Another report by Centrum on May 29, said, “While the company continues to hold strong franchise in the rural market, we believe that improved consumer sentiments on the urban side should help it register better than expected growth.”

In 2014, the stock has risen almost 30 percent so far.

HINDALCO: Shares of the aluminum and copper producing company rose 14.4 percent this week, taking its gains for the year to 38 percent.

Like Tata Steel, Hindalco also benefited from the positive China factory surveys released earlier this week.

Last month, the company, part of the Aditya Birla group, reported a 48.5 percent drop in its quarterly profit.

The outlook for the stock is mixed: of the 50 analysts covering the stock, 17 have a buy or an equivalent rating while 18 have a sell or equivalent rating, data showed.

This week, the stock touched its highest level since 2011 (174 rupees) and ended at 168.90 rupees on Friday.

GAIL: The last in the list of top five Sensex performers this week was GAIL, with gains of 11.4 percent on continued hopes of reforms in the sector.

On Friday, the stock surged more than 7 percent to end at 420.35 rupees.

Last month, the company reported a 57 percent increase in its January-March net profit, but missed some analyst estimates.

“In the absence of ramp up in domestic gas volume, we expect LNG trading business would drive growth for the company,” IIFL said in a research report on May 28, upgrading the stock to ‘buy’.

Analysts are divided over the future of the stock, with 19 of 43 analysts having a buy or equivalent rating while 16 recommend holding the stock, data showed.

LOSERS: Drugmaker Dr Reddy’s, which fell 4 percent, is the worst Sensex performer this week. TCS, India’s No.1 software services firm, lost 2.8 percent, while Sun Pharma and ITC dropped 1.3 percent each. Utility vehicle maker M&M ended marginally lower.

(Editing by Tony Tharakan; Follow Tony on Twitter @TonyTharakan, Aditya @adityayk and Ankush @Ankush_patrakar | Disclaimer: This article is website-exclusive and cannot be reproduced in any form without permission)

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •