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Weekly wrap: Bank stocks boost benchmarks; broader markets rally 4%

18:25

It was yet another week which saw key benchmark indices break previous records and scale new all-time high levels. Benchmark indices managed to churn out over 1 percent gains amid consolidation and saw Nifty cross the crucial 7900 mark for first time ever.

Nifty was up 1.6 percent while Sensex gained 1.2 percent in the week ended 22 August, 2014. Both the indices gained in 4 out of 5 sessions this week. Heavy buying in banking stocks supported this week’s rally. CNX PSU index returned robust 6.7 percent gains to investors this week while Bank Nifty was up 4.8 percent.

Reforms ahoy

The proposed banking reforms and a dip in global crude oil prices boosted investor sentiment along with inspiring speech by Prime Minister Narendra Modi on Independence Day. 

The Finance Ministry approved a draft cabinet note, which proposes to create a holding company structure for public sector banks. This holding company will raise money in order to recapitalise public sector banks. UBI, PNB and SBI surged 4-8.1 percent during the week. PNB and SBI were among the top Nifty gainers this week.

CLSA expects loan growth of Indian banks to fall to less than 10 percent in Aug-Sept this year due to high base effect and subdued demand in the near term. They however expect it to recover thereafter. Weakness in Banks is a buying opportunity. ICICI Bank, Axis and IndusInd are their top picks among private lenders and SBI amongst PSU Banks.

Cheaper energy?

A dip in price of crude oil-which largely constitute the country’s import bill namely- not only boosted the sentiment but will help the government wipe out diesel subsidy completely. Finance Secretary Arvind Mayaram earlier said that oil marketing companies will soon not incur any losses in the sale of diesel and diesel prices will be market driven. He added that easing crude prices will help wipe out diesel under-recovery very soon.

Crude oil prices fell below $ 100-a-barell mark as Libya increased it’s oil output and worries over supply from key producer Iraq eased.

“Falling crude along with LNG and coal prices is a huge positive for India, since energy imports accounted for 36 per cent of its total imports last fiscal, said a Crisil report.

Oil & gas index swelled 2 percent this week as diesel under recovery dropped to record lows levels of Rs 1.31 per litre  after this month’s diesel price hike; it could fall further to below 1rs post sep 1 hike. This is a huge positive for oil marketing companies such as HPCL, BPCL IOC.

Goldman Sachs has a 12 month target price of 538 on HPC with a blue sky scenario of Rs 1505 apiece and 12-month target price of Rs 701 on BPCL with a blue sky scenario of Rs 1236/share. BPCL surged 9.6 percent to close at Rs 672 levels on NSE. The stock was among top Nifty gainers this week.

Market Internals

Pharma index also surged 5.3 percent led by gains in Cipla, Glenmark and Lupin which hit their record highs this week. Lupin and Cipla surged 5.7-11.3 percent this week; Cipla fared among the top Nifty gainers this week.

Glenmark Pharma touched a record high of Rs 749.05 per share on August 20, as it entered into oncology with discovery and initiation of an innovative bispecific antibody-GBR 1302 molecule.

Ajay Srivastava, CEO, Dimensions Consulting sees a long-term rally in large cap pharma stocks. While speaking to CNBC-TV18 he said that the market has seen only one-tenth of the pharma boom that is expected from the industry over the next 10 years and so, one must not get out of the pharma bandwagon.

Lofty targets

Some experts such as Rajesh Kothari, Managing Director of AlfAccurate Advisor have now set ambitious targets for markets given the stellar bull-run that saw key indices return 25 percent gains in calendar year 2014. In a conversation with CNBC-TV18,

Kothari said he sees Sensex scale 46,000 levels by March 2017.

“We expect broad-based wealth creation across sectors,” he told CNBC-TV18.

Devesh Kumar, Managing director & country head, CIMB Securities sees Nifty heading to 10,000 plus levels in 12-months time.

Broader market: Snakes and ladders

Market experts from all quarters have consistently suggested investors to exercise caution while diving in the choppy waters of broader markets. But yet again this week’s performance of stocks from the space suggests that market participants sometime play for the love of the game, when in a bull market.

CNX mid-cap and BSE small-cap indices jumped 3.6 percent and 4.8 percent respectively this week. From the space, BASF, Hercules,

Manappuram, Nectar Life, Igarashi Motor hoisted up between 33-47 percent. Bhushan Steel and UB Holdings tanked between 20-22 percent.

Bhushan Steel tanked after the company’s Vice President was caught in a bribe-for-loan scandal, which also led to the arrest of Bank of India Chairman & MD SK Jain.

Bankers have tightened the noose on Bhushan Steel. The consortium of banks led by  PNB  says auditors will monitor the company’s cash flow on a daily basis and a forensic audit will be conducted. This comes after the bribe-for-loan scandal came to light just a few days back, which led to some top executives of Bhushan Steel getting behind bars.

On mid-caps, Deven Choksey of KR Choksey shares & Securities said, “I believe that midcaps will be a very selective space and that is where one will have to keep clear focus on.”

What’s next

It’s a truncated week ahead as stock market remains closed on account of Ganesh Chaturthi on Friday. It is likely to remain volatile though as August series F&O contracts expire on Thursday.

FII investments, global markets, crude oil price movement and monsoon will be watched for direction.

On the macro front investors will track Q1 June GDP data slated to be released on Friday.

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