Saturday, 23 August 2014

Weekly Review: Bank stocks boost benchmarks; broader markets rally 4%

Weekly Review: Bank stocks boost benchmarks; broader markets rally 4%

Nifty was up 1.6 percent while Sensex gained 1.2 percent in the week ended 22 August, 2014. Both the indices gained in 4 out of 5 sessions this week. Heavy buying in banking stocks supported this week's rally. CNX PSU index returned robust 6.7 percent gains to investors this week while Bank Nifty was up 4.8 percent.

Reforms ahoy 

The proposed banking reforms and a dip in global crude oil prices boosted investor sentiment along with inspiring speech by Prime Minister Narendra Modi on Independence Day.

The Finance Ministry approved a draft cabinet note, which proposes to create a holding company structure for public sector banks. This holding company will raise money in order to recapitalise public sector banks. UBI, PNB and SBI surged 4-8.1 percent during the week. PNB and SBI were among the top Nifty gainers this week.

CLSA expects loan growth of Indian banks to fall to less than 10 percent in August-September this year due to high base effect and subdued demand in the near term. They however expect it to recover thereafter. Weakness in Banks is a buying opportunity. ICICI Bank, Axis and IndusInd are their top picks among private lenders and SBI amongst PSU Banks.

Cheaper energy?

A dip in price of crude oil-which largely constitute the country's import bill namely- not only boosted the sentiment but will help the government wipe out diesel subsidy completely. Finance Secretary Arvind Mayaram earlier said that oil marketing companies will soon not incur any losses in the sale of diesel and diesel prices will be market driven. He added that easing crude prices will help wipe out diesel under-recovery very soon.

Crude oil prices fell below USD 100-a-barell mark as Libya increased it's oil output and worries over supply from key producer Iraq eased.

"Falling crude along with LNG and coal prices is a huge positive for India, since energy imports accounted for 36 per cent of its total imports last fiscal, said a Crisil report.

Oil & gas index swelled 2 percent this week as diesel under recovery dropped to record lows levels of Rs 1.31 per litre after this month's diesel price hike; it could fall further to below 1rs post sep 1 hike. This is a huge positive for oil marketing companies such as HPCL, BPCL IOC.

Goldman Sachs has a 12 month target price of 538 on HPC with a blue sky scenario of Rs 1505 apiece and 12-month target price of Rs 701 on BPCL with a blue sky scenario of Rs 1236/share. BPCL surged 9.6 percent to close at Rs 672 levels on NSE. The stock was among top Nifty gainers this week.

Market Internals
 Pharma index also surged 5.3 percent led by gains in Cipla, Glenmark and Lupin which hit their record highs this week. Lupin and Cipla surged 5.7-11.3 percent this week; Cipla fared among the top Nifty gainers this week.

Glenmark Pharma touched a record high of Rs 749.05 per share on August 20, as it entered into oncology with discovery and initiation of an innovative bispecific antibody-GBR 1302 molecule.

What's next

It's a truncated week ahead as stock market remains closed on account of Ganesh Chaturthi on Friday. It is likely to remain volatile though as August series F&O contracts expire on Thursday. FII investments, global markets, crude oil price movement and monsoon will be watched for direction. On the macro front investors will track Q1 June GDP data slated to be released on Friday.

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