Tech, pharma to lead market rally as cyclicals may disappoint

MUMBAI: Sectors such as IT and pharmaceuticals are no longer defensive anymore. They both have participated in the recent rally and are outperforming cyclicals even as there are hopes of growth picking up in next couple of quarters.

Most analysts have turned bullish in these sectors as the cyclicals disappointed on earnings front in previous quarter. There not many expectations from them in second quarter results as well. Concerns that the Reserve Bank of India will keep rates unchanged at current levels at its next meeting are also weighing on sentiment.

"If you look at the first quarter earnings growth, it does not look like the corporate earnings growth is accelerating significantly. Below par monsoons and the prevailing high interest rates seem to be creating obstacles to the full-fledged earnings recovery in the current year, though the headline growth numbers seem to be improving. It is still a mixed base," said Anand Radhakrishnan, CIO-Equity, Franklin Templeton Investments to ET Now.

"The IIP growth has still not taken a definitive upward swing. Based on that, the current year's earnings growth is going to be a moderate recovery from a single digit earnings growth over the last few years to the lower double digit earnings growth," Radhakrishnan added.

Information technology and pharmaceuticals were the other sectors to post strong gains over the past three months while the cyclicals have been on a downward trajectory.

"Cyclical stocks saw consensus earnings revised downwards with only few sectors, like consumer discretionary and healthcare, seeing upward earnings revisions over the past three months. Solid 2QFY15 results will be required in these re-rated sectors to maintain the momentum," said Kotak Securities report.

"Although downward revisions have stagnated, upward revisions favor defensives as more than 40% of the defensive stocks recorded EPS upgrades in the past month. Cyclical stocks were on a downtrend during the period," the report added.

At 01:10 p.m.; the BSE Healthcare index was up 2.16 per cent and the S&P BSE IT Index gained 1.56 per cent against 0.10 per cent rise on the Sensex.

S&P BSE Metal Index was down 1.14 per cent, S&P BSE Bankex was 0.40 per cent lower and S&P Auto Index declined 0.24 per cent.