IT and energy lift markets!

Mon, 21 Feb Closing

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After spending most of the day around the breakeven point, the benchmark indices really took off during the last couple of hours and as a result, have closed the day strongly in the positive. BSE-Sensex has closed with gains of around 230 points whereas NSE-Nifty edged higher by around 60 points (up 1.1%). BSE Midcap and BSE Small cap indices, however, did not participate in the rally and were seen ending mostly flat. On the Sensex, more than two stocks gained for every one that witnessed a decline.

While most Asian indices closed in the red today, Europe too is trading in the red currently. The rupee was trading at Rs 45.1 to the dollar at the time of writing.

The late afternoon surge seemed to be driven mostly by IT and energy stocks as heavyweights like Reliance, Infosys and ONGC did end on quite a strong footing today. There does not seem to be any development of note that would justify the buying in these counters. Thus, the buying perhaps had to do with bargain hunting as most of these counters had lost quite a bit in the recent correction.

IT major Wipro traded strong today and closed the day with gains of around 4%. The buoyancy seemed a result of upgrades by few prominent brokerages of the company’s future earnings. All of these seem to conclude that the worst is priced into the stock and hence, it may surprise the street on the upside. The optimism also seemed to rub on the other IT majors as firms like TCS and Mphasis also managed to log in strong gains. As far as our view is concerned, going forward, we expect IT companies to do well on the back of buoyant growth in volumes. This would be driven by the strong deal pipelines. Pricing may remain stable with an upward bias. However, adverse currency movement may dampen margins to some extent. Most of the companies have been on a major recruiting spree. As a result, personnel related costs for 2011 are expected to trend upwards, which would further impact margins.

CV major Tata Motors closed weak today and lost more than 3% of its value. As per a leading daily, the company’s JLR unit is in talks with top Chinese sport utility vehicle maker about a potential China tie-up. The Chinese company in question is Great Wall Motor Co. As per one of the executives of the Chinese firm, the two companies are exploring opportunities for cooperative effort and talks have already passed the initial stages. If the talks do indeed go through, it will be one more step in the positive direction for JLR, who seemed to turn over a new leaf ever since its acquisition by Tata Motors. JLR, it should be noted, put up a stellar performance in the quarter gone by and helped greatly boost the overall performance of Tata Motors.