Banking, FMCG stocks may face bouts of profit booking
The market is not seeing a broad based rally as the small and mid-cap counters continue to underperform the benchmark indices.
Updated:
By Shardul Kulkarni
The last week has been an eventful one both for domestic as well as for international markets. Globally, we saw the European Central Bank (ECB) cutting rates and fuelling further money supply into the sagging Euro zone economies.
We also saw the FED vow to keep the US economy afloat by using the words such as “prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes” ( FED, Press Release, 1st May 2013).
Domestically though, the RBI statement on Friday rattled markets even though the central bank reduced the repo rate by 25 bps. However, the central bank cautioned that chances of further rate cuts are dependent on fiscal reforms and that at the current juncture there is very limited room for further monetary easing.
Other than these economic developments, we saw the US markets hit a new all-time high. Few of the global majors are now committed to invest about 7 billion dollars in investments into Indian companies. The companies in focus are Hindustan Unilever, Bharti Airtel and Ikea India.
On the benchmark indices, we have seen another up move in the last 4 sessions. I must admit that the markets have now moved about 100 to 150 points higher than what I had earlier envisaged.
The purchase offer by Unilever to invest up to $5.4 billion into its Indian arm has given a booster shot to the FMCG space. This was unexpected which led to further buying into ITC and HUL. However, to expect further upside from these stocks and expect them to lead the index would be inappropriate.
The banks have moved in line with our expectations. Last week we mentioned that if the RBI policy was in line with the market expectations, a correction in banking counters was inevitable.
ICICI bank and SBI fell post the declaration of the monetary policy and further cracks have opened up in the PSU banking counters on the back of weak results. Technically speaking, my outlook has not changed. The market is not seeing a broad based rally as the small and mid-cap counters continue to underperform the benchmark indices.
On the charts, the Nifty and the Sensex both have faced some selling pressure near to the 78.6% retracement of the fall from 29th Jan 2013 to 10th April 2013. Banking and FMCG counters look set for a bout of profit taking.
The last week has been an eventful one both for domestic as well as for international markets. Globally, we saw the European Central Bank (ECB) cutting rates and fuelling further money supply into the sagging Euro zone economies.
We also saw the FED vow to keep the US economy afloat by using the words such as “prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes” ( FED, Press Release, 1st May 2013).
Domestically though, the RBI statement on Friday rattled markets even though the central bank reduced the repo rate by 25 bps. However, the central bank cautioned that chances of further rate cuts are dependent on fiscal reforms and that at the current juncture there is very limited room for further monetary easing.
Other than these economic developments, we saw the US markets hit a new all-time high. Few of the global majors are now committed to invest about 7 billion dollars in investments into Indian companies. The companies in focus are Hindustan Unilever, Bharti Airtel and Ikea India.
On the benchmark indices, we have seen another up move in the last 4 sessions. I must admit that the markets have now moved about 100 to 150 points higher than what I had earlier envisaged.
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The purchase offer by Unilever to invest up to $5.4 billion into its Indian arm has given a booster shot to the FMCG space. This was unexpected which led to further buying into ITC and HUL. However, to expect further upside from these stocks and expect them to lead the index would be inappropriate.
The banks have moved in line with our expectations. Last week we mentioned that if the RBI policy was in line with the market expectations, a correction in banking counters was inevitable.
ICICI bank and SBI fell post the declaration of the monetary policy and further cracks have opened up in the PSU banking counters on the back of weak results. Technically speaking, my outlook has not changed. The market is not seeing a broad based rally as the small and mid-cap counters continue to underperform the benchmark indices.
On the charts, the Nifty and the Sensex both have faced some selling pressure near to the 78.6% retracement of the fall from 29th Jan 2013 to 10th April 2013. Banking and FMCG counters look set for a bout of profit taking.
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If I think from a trader’s perspective in this situation, I am sitting on a 10% rally in 3 weeks. What to do next is fairly clear. Also, the adage, “Sell in May and go away” has been appropriate in the Indian context. The month of May has given negative returns in 4 out of the last 5 years.
We continue to advise traders to book profits and move out of the market on any rally towards the 6000 mark. We expect correction to set in anytime during the next 5 to 8 sessions.
While the global markets are on a new high, one cannot forget that we cannot print money as easily as they can. On the contrary, if the money printing stops in those countries, what would happen is a sequel of 2008 and is best not debated.
(Disclosure: The author is a senior technical analyst at Angel Broking. They may have positions in the stocks discussed and may have recommended them to their clients)
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