Sensex sits pretty on Mount 25k after blockbuster week on D-St

The BSE Oil & Gas Index hogged the limelight, followed by metals, capital goods and realty

The markets continued their dream run, with the Sensex and Nifty scaling new lifetime peaks on hopes of policy reforms in the upcoming Budget and expectations of Centre’s initiatives to revive the tottering economy. The Sensex surged 1,179 points or 4.8 per cent to 25,396 and Nifty rallied 353 points or four per cent to 7,583, on the back of strong momentum in the oil and metal space. The broader indices outperformed the benchmark indices, with the CNX Midcap rising eight per cent to a life-time high of 10,952 and BSE Smallcap gaining eight per cent to 9,774. Five of the 12 BSE sectoral indices ended at 52-week highs.  

The benchmark indices rebounded with a bang after correcting about two per cent in the previous week. There was a buying frenzy on hopes of natural gas price hike by July 1, cut in under-recoveries by raising LPG and kerosene prices, rise in import tax for sugar and solution to NPA issues plaguing the PSU banks, among other things.

The optimistic manufacturing sector survey that showed a rise in production volumes at Indian manufacturers and the Reserve Bank of India’s (RBI) decision to cut the statutory liquidity ratio by 50 basis points in Rajan’s first credit policy since the new Modi-led dispensation took charge provided a further adrenaline boost to the markets. The hopes of a normal monsoon, going by the predictions of the India Meteorological Department, added to the gush of liquidity-led buying on the Dalal Street.  In the process, the Sensex surpassed its previous all-time high of 25,375 registered on May 16 and its previous record close of 25,019 hit on June 5.

Since the Narendra Modi-led National Democratic Alliance government took charge at the Centre on May 26, the markets have gained about three per cent, while foreign investors have pumped in about Rs 6,600 crore ($1.2 billion).

Stocks in action
Oil and gas stocks were the largest weekly drivers for the markets in what probably marked the beginning of re-rating of this under-valued and under-owned sector. The BSE Oil & Gas Index surged by a whopping 10 per cent in the wake of reports that the oil ministry is looking to clarify the new government’s stand on the gas prices by the beginning of July. Metals surged 11 per cent, followed by capital goods and realty (up 9.6 per cent and 12.3 per cent, respectively).

Among individual names, ONGC was on the boil, zooming 23 per cent to touch a life-time high of Rs 461. BPCL rallied 20 per cent on hopes of a hike in LPG and kerosene prices and GAIL spiked by 12 per cent to further catapult the oil index. Reliance Industries ended higher by three per cent at Rs 1,121.

In the metal space, Tata Steel galloped 18 per cent after re-starting most of its iron ore mines in Odisha after getting new permits from the state government. Contemporaries such as Hindalco Industries, Jindal Steel and NMDC raced ahead by 12-14 per cent each due to an improvement in China’s factory sector.  

Hero Motocorp, UltraTech Cement, Cairn India, DLF and L&T were other prominent gainers in the largecap space, soaring by 10-15 per cent each.

In the midcap space, Triveni Engineering, Suzlon Energy, Amtek Auto, Dhanlaxmi Bank, Orbit Corporation, Bajaj Hindusthan, Brigade Enterprises, Eros International, SAIL and Reliance Capital shot up by 24-54 per cent each.

Sugar shares surged after Food Minister Ram Vilas Paswan was quoted as saying on Thursday, June 5, 2014, that the government will examine raising import tax on sugar to support local prices and help mills clear dues to cane growers which is estimated at Rs 11,000 crore. Shree Renuka Sugars, Bajaj Hindusthan, Triveni Engineering & Industries, Dhampur Sugar Mills and Balrampur Chini Mills surged 10-15 per cent each.

The information technology (IT) stocks were the only sore point amid the thumping rally and the strong rupee was the culprit. A firm rupee adversely affects operating profit margins of IT companies as the sector derives a lion’s share of revenue from exports.  HCL Technologies and TCS were top losers, down 6.5 per cent and three per cent, respectively.  Infosys dropped around three per cent on reports of another high-level exit from the company.

Outlook
The unbridled optimism is likely to continue at least till the Budget session scheduled in the beginning of July, as investors bet on and markets factor in policy actions by the new government. The easing global liquidity, as evidenced by the European Central Bank’s recent action of cutting interest rates to a record low of 0.15 per cent, is also a huge positive for Dalal Street. In this momentum, buy-on-dips market, any dips can be opportunities for taking fresh positions on the long side. However, as a word of caution, the upside might be limited from hereon as expectations on the reform front would have been considerably factored in by the recent runaway spike in stock prices.

The April industrial production data and May CPI inflation will be announced on June 12 and these would be important data points to watch out for, going into the next week.