January effect takes over ::CSEC Research

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January effect takes over

January saw the markets making a comeback, this after a couple of months of decline. Buying interest saw the markets recovering ~77% of the losses since October. The BSE Sensex closed with a gain of 11.2% while S&P CNX Nifty closed with a gain of 575 points at 5199. Buying interest was witnessed in lower rung stocks with the BSE Midcap and BSE Smallcap indices closing with gains of 14% and 17% respectively.  The rally appears to have come on the back of months of selling pressure. Typically such a rally characterises a phenomena known as January effect. The S&P CNX Nifty broke its January losing streak since January 2008, the index further went on to record its highest gains since 1996.  

Steam still left in private sector banking stocks

Despite a tight liquidity environment debt markets are discounting peaking of interest rates. The RBI’s status quo on policy rates was a dampener; however, the RBI is likely to adopt a pro-growth policy stance contingent on inflation, hovering within the RBI’s comfort zone.

After two fiscals of strong growth, the current fiscal (FY12) has been a challenging one. December results were below expectations for quite a few companies; however, sales growth was largely along expected lines. Frontline IT stocks – Infosys and TCS - went through earnings upgrades in the recent weeks, while Wipro and most of the remaining Sensex stocks were subject to earnings downgrades. At 17,600, the Sensex is trading at 13.7X FY13 earnings estimates.  

Along expected lines FMCG companies reported margin improvement. However, stocks in this space have gone through only a moderate correction investors would be better off sticking to large and midcap stocks in the FMCG space. Considering the deferment in rate cut and the significant rally; stocks with high-leverage, typically infrastructure, shipping and real estate need to be given a go-by. Bogged down by asset quality and capital adequacy concerns under Basell III the financial space had gone through a sharp correction. Despite the rally, banking stocks in the private space appear attractive. PSUs with a strong cash position may also be considered as investment avenues.

 

Regards,

CSEC Research