Second rung stocks continue to outperform: CSEC Research

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Second rung stocks continue to outperform

For the second month in a row the markets closed on a positive note. February witnessed a secular rally, however, unlike January profit booking in the fag end of February clipped gains. The BSE Sensex closed with a gain of 3.3% while S&P CNX Nifty closed with a gain of 186 points at 5,385. Small and midcap stocks continued to outperform their large cap peers. The BSE Midcap and BSE Smallcap indices closed with gains of 8.8% and 6.1% respectively.  De-listing candidates Oracle Financial Services, Alfa Laval and Goodyear India attracted buying interest.

Secular uptrend; realty leads rally

Most sector-oriented indices on the BSE closed on a positive note, the BSE Healthcare index bucked the trend to close on a flat note. The Realty and Consumer Durables indices closed with double digit gains. The S&P CNX 500 gained 4.7%. Markets were skewed in favour of gainers with the advances-declines ratio at 4:1. This was particularly strong in finance, industrials and utilities. Second rung stocks in the banking, NBFC and realty spaces played catch up with larger peers. Bargain hunting continued to be at play in the realty space; however, a slowdown in momentum was noted. 

Markets reasonably valued but face headwinds

With the Sensex at 15 times FY 12 earnings, markets from a valuation standpoint remain reasonable. The headwinds that the markets face include higher oil prices and its impact on inflation combined with the risk from overseas events which have an effect on the risk appetite for Indian equities from FIIs.

Given the reasonable valuations and possibility of rate reductions which could positively impact the economy, we recommend investors to focus on companies with strong balance sheets and those with secular growth prospects as the economy grows further.

 

Regards,

CSEC Research