Markets overcome stubborn resistance

Wed, 8 Feb Closing

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Some stubborn resistance towards the fag end of the day was finally overcome. And as a consequence, indices in the Indian stock market closed in the green on yet another occasion. While Sensex edged higher by close to 85 points (up 0.5%), gains on the NSE-Nifty came in at close to 33 points. BSE Mid cap and BSE Small cap indices fared even better, edging higher by 1.5% and 0.9% respectively. More than 3 stocks gained for every one that closed the day in the red on the BSE-Sensex.

As far as other Asian markets are concerned, all of them registered strong gains with Europe too trading in the positive currently. The rupee was poised at Rs 49.2 to the dollar at the time of writing.

With today's gains, markets are now up nearly 15% than when they started the year. A good achievement indeed. However, the gains are not restricted to India alone. A lot of other risk assets have gone up too so far this year. This has perhaps to do with the fact that confidence is making a comeback in the global markets and investors are going in droves into high risk, high return emerging markets like India. But we don't think this confidence is built on firm grounds. Problems in the developed economies still persist and one adverse development is all that will take to diminish confidence. This should not deter long term Indian investors though as the same may present them the opportunity to buy into fundamentally strong stories at attractive valuations.

Auto stocks traded mostly strong today with Ashok Leyland and Hero MotoCorp being the leading gainers. The gains are supposed to have come in on account of a good performance by the auto sector in the month gone by. As per SIAM, the industry body, cars recorded a growth of 7% YoY in January, its third consecutive monthly rise this fiscal. It should be noted that car sales had been in decline for the first few months of FY12, mainly on account of strong growth witnessed in FY11 and also weak economic environment. And though the sales have improved November 2011 onwards, they are unlikely to make up for the drop in the earlier months of the fiscal. Thus, the industry may well miss its sales projection for FY12 of 0-2%.

Opto Circuits, one of India's leading makers of medical equipment, also closed higher on the bourses today. What led to the buoyancy was the company's strong performance in the December 2011 quarter. On a consolidated basis, the company posted a growth of 31% YoY in its net profit on the back of a near 42% increase in its total income. Standalone profits came in higher by more than 7% even as the topline growth came in nearly flat. The management observed that its efforts towards expanding presence in emerging markets, with a renewed focus on India, have begun to bear fruit. The company also recommended to issue bonus shares to the tune of 3 shares for every 10 share held in the company.