Nifty50 reclaims 11,000 levels. Will the up move sustain?

The Nifty50 index reclaimed 11,000 levels in intra-day trade on Wednesday, a feat it last achieved on October 1, 2018. The recent rally has been on account of positive news-flow and better-than-expected financial performance in a handful of stocks that comprise the index.

Sector-wise, stocks from the information technology (IT), private banks and select non-bank finance companies, besides heavyweights Reliance Industries, Larsen & Toubro (L&T), Hindustan Unilever (HUL) have been the major contributors.

Since October 2018 when the index hit the 11,000 level, RIL, Titan Company, L&T, HUL have moved up in the range of 4.5 per cent to 31 per cent till February 5, ACE Equity data show. Axis Bank, Kotak Mahindra Bank, ICICI Bank, State Bank of India (SBI), HDFC Bank, Bajaj Finance and Bajaj Finserv from the financial space; Wipro and Infosys from the IT sector have been among the top gainers.

On the other hand, Sun Pharma, Vedanta, Grasim, Indiabulls Housing Finance, JSW Steel, Tata Motors, Cipla and Coal India have been among the top losers during this period, slipping 20 per cent to 36 per cent, data show.

“The rally in the Nifty50 index has been on account of short-covering. There was a lot of Call writing at the 11,000 level (Nifty) and even now, maximum Call open interest (OI) of around 37-lakh contracts was seen at the 11,000 strike price. Till the position gets squared-off the index will not fall below the 11,000 mark. That said, the overall market breadth still remains weak as only a handful of stocks have led the up move,” said A K Prabhakar, head of research at IDBI Capital.

Investing strategy

Most analysts remain bullish on the road ahead for the IT sector and say it could be a safe-haven bet in the backdrop of volatility arising due to the upcoming general elections. On the fundamental front, industry body Nasscom has projected exports of IT services to grow at 7 – 9 per cent for 2018-19, almost the same as the previous fiscal year, but expects domestic revenue to grow faster at 10-12 per cent. 

During the recently concluded quarter, digital businesses of most companies maintained their robust trajectories, and momentum could accelerate as they shift to the enterprise-wide implementation stage from the testing and proof-of-concept stages, analysts say.

"We rate the sector overweight. We prefer large cap IT companies over mid-IT companies mainly due to valuation comfort and growth guidance of the large companies going ahead. Most IT companies posted constant currency (CC) growth for Q3 in line with consensus expectations despite a seasonally weak quarter. Among the large-caps, Maruti Suzuki, Mahindra & Mahindra, ITC, RIL, HDFC Bank, ICICI Bank, TCS, Infosys, Cipla and L&T are among the top picks," analysts at Standard Chartered said in a recent report.

Going ahead, analysts at Motilal Oswal Research expect the markets to remain volatile at least till the general election outcome is known. ICICI Bank, Axis Bank, Titan, Maruti, HUL, Infosys, L&T, HDFC and SBI are their top bets in the large-cap universe.

Company Name	NDP_Date	NDP_Close	Change (%) *
Titan Company Ltd.	05-Feb-2019	1066.70	31.73202
Axis Bank Ltd.	05-Feb-2019	729.50	22.92527
UPL Ltd.	05-Feb-2019	795.95	19.58383
Bajaj Finance Ltd.	05-Feb-2019	2603.60	17.88997
Kotak Mahindra Bank Ltd.	05-Feb-2019	1279.15	14.00624
Asian Paints Ltd.	05-Feb-2019	1450.35	13.3263
Dr. Reddys Laboratories Ltd.	05-Feb-2019	2821.45	12.4711
ICICI Bank Ltd.	05-Feb-2019	352.65	12.30892
Wipro Ltd.	05-Feb-2019	368.45	11.60079
Hindustan Unilever Ltd.	05-Feb-2019	1821.45	10.90848
Housing Development Finance Corporation Ltd.	05-Feb-2019	1981.40	9.690813
Bharti Infratel Ltd.	05-Feb-2019	288.90	7.959641
Reliance Industries Ltd.	05-Feb-2019	1291.55	4.859138
Larsen & Toubro Ltd.	05-Feb-2019	1304.60	4.526881
State Bank Of India	05-Feb-2019	284.65	3.943765
HDFC Bank Ltd.	05-Feb-2019	2114.05	3.861554
Adani Ports and Special Economic Zone Ltd.	05-Feb-2019	339.80	2.860602
Bajaj Finserv Ltd.	05-Feb-2019	6017.10	2.299447
Infosys Ltd.	05-Feb-2019	754.85	1.098239
* Change since October 01, 2018
Source: ACE Equity