Markets snap two week winning streak; defensives weigh

Broader markets outperform as investors buy mid-cap and small-cap shares at attractive valuations

Markets snapped a two-week winning streak after investors trimmed positions in information technology shares amid weak revenue growth from TCS while profit taking in pharma shares also added to the losses.

In the truncated week to April 17, the 30-share Sensex dropped 437 points or 1.5 per cent to end at 28,442 and the 50-share Nifty closed 174 points or 2 per cent lower at 8,606.

Selling pressure was also seen in the broader markets with the BSE Mid-cap down 2.9 per cent and the Small-cap losing 1.9 per cent during the week.

“Profit booking was seen across verticals with stock specific action post the earnings announcements. Meanwhile, we could see some support from Reliance Industries early next week on the back of robust fourth quarter profit,” says Jagannadham Thunuguntla, Head of Fundamental Research at Karvy Stock Broking.

In the defensive space, apart from IT sector pharma shares also witnessed profit taking amid stock specific news while rate sensitive sectors such as banks, auto and realty also registered losses after gains in the previous weeks.

IT shares weakened after lower than expected revenue growth during the fourth quarter by TCS. Constant currency revenue growth came in lower than expected 1.6 per cent in the fourth quarter, against some analysts' expectations of about 2 per cent. Net profit for the quarter took a hit after the IT major rewarded its employees with a huge one-time bonus of Rs 2,628 crore to celebrate 10 years of listing. Infosys and Wipro ended down 2-5 per cent each. Sun Pharma ended down 7.3 per cent on the back of improved liquidity after 334.96 million shares issued by the drug maker on amalgamation of Ranbaxy Laboratories were permitted for trade from Friday.

Lupin also witnessed profit taking on concerns that sales of its largest brand Suprax could take a hit after Aurobindo Pharma got final approval from the US Food and Drug Administration (USFDA) to make and sell the generic version of oral suspension of antibiotic Cefixime. The stock slumped nearly 10 per cent. Among other pharma shares, Cipla slipped 2.8 per cent while Dr Reddy’s Labs ended down 3.9 per cent.

Hero MotoCorp ended down 6.7 per cent after US-based sports motorcycle maker Erik Buell Racing Inc (EBR), in which Hero MotoCorp holds 49 per cent stake with an investment of $25 million two years ago, announced closure of operations and filed for bankruptcy protection from creditors. Bajaj Auto ended down 1.7 per cent.

Mahindra & Mahindra which had eased last week on weak March sales extended losses on concerns that weak monsoons could hurt tractor sales. The stock ended down 4.6 per cent. Further, Tata Motors eased 4.7 per cent while Maruti Suzuki ended 0.6 per cent lower. Investors trimmed positions in private lenders. IndusInd Bank emerged as the top loser down 7.4 per cent. The private lender's net profit surged 27 per cent for the quarter ended March, to Rs 495 crore from Rs 396 crore in the same quarter of 2013-14. Among others, Axis Bank, ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Yes Bank ended down 2-6 per cent.

ONGC emerged as the top Sensex gainer up 6.5 per cent. In his maiden visit to the North-East Petroleum Minister urged the state-owned explorer to contain the decline in crude oil production. The minister also reviewed overall performance so as to initiate measures to ramp up production from Assam asset.

Reliance Industries which had been steadily rising in the run-up to its fourth quarter earnings ended up 2.6 per cent. The oil and petrochemicals major beat street estimates posting its highest quarterly profit in seven years at Rs 6,381 crore in the fourth quarter ended March 2015 on the back of higher refining margins. Gross refining margin stood at $10.1 per barrel against $9.3 a barrel during the corresponding quarter of 2013-14.

Week ahead
Fourth quarter earnings will be in focus with Cairn India, HDFC Bank and Yes Bank among others set to announce their numbers this week.

IT shares may continue to remain weak ahead of earnings from Wipro and HCL Tech.

Reliance Industries could firm up after it posted robust fourth quarter earnings.