Sensex Continues Momentum; Banking Stocks Witness Buying

Thu, 4 May 11:30 am

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After opening the day on a positive note, Indian share markets have continued their momentum and are presently trading in the green. Sectoral indices are trading on a positive note with stocks in the banking sector and consumer durables sector leading the gains.

The BSE Sensex is trading up 168 points (up 0.6%) and the NSE Nifty is trading up 31 points (up 0.3%). The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by 0.5%. The rupee is trading at 64.20 to the US$.

Indian share markets are witnessing buying interest today. Most of this is seen on the back of ICICI Bank's March quarter result announcements, a strengthening rupee, and Cabinet clearance to NPA package.

Taking cues from the above events, the Sensex has again conquered its 30,000 mark.

One of the major developments tracked today is the Cabinet clearing the non-performing asset (NPA) resolution package. The package includes an ordinance to empower the Reserve Bank of India (RBI) to more effectively deal with bad assets.

The move will mean RBI cleaning up the balance sheets of banks that have been burdened with bad debts for long.

The development comes just in time with the total NPAs of banks mounting to Rs 6.1 trillion as of February 2017. The NPAs have been the highest in the public-sector banks (PSBs) thereby being a major drag on their financials.

In the news from global financial markets, the Fed kept its interest rates unchanged in its two-day monetary policy meet which ended yesterday. While doing so, the central bank downplayed weak first-quarter economic growth and emphasized the strength of the US labor market.

The Fed signaled that it's still on track for two more interest rate increases this year.

As per the central bank, consumer spending has continued to be solid, business investment has firmed up and inflation has been running close to its target in the recent months.

An important part in the Fed minutes released last month...most Fed policymakers think the central bank should take steps to trim its US$4.5 trillion balance sheet later this year as long as the economic data holds up. But this would tighten financial conditions and could affect the pace of rate rises.

And normalising the balance sheet could impact emerging markets. Since 2008, the Fed's swelling balance sheet has propped up the US economy. It also aided the rally in emerging markets all these years. Any change to the Fed's balance sheet will have an immediate impact on emerging stock markets.

Apart from the above, market participants are keeping tabs on the quarterly earnings by domestic companies to be announced today.

Among the list, HDFC, MCX, Exide Industries, MRF, Emami, Godrej Properties, IIFL and Tata Communications are some of the companies that are scheduled to report their quarterly earnings today.

There's much hoopla surrounding the ongoing earnings season. However, if one has to go by the year-on-year performance, there's nothing to cheer much about it.

As an article in Business Standard suggests, the earnings growth has slid from 15.6% in FY16 to just 7.2% in FY17, making it the worst in three years. This is despite the lower tax outgo and other income boost in FY15. Domestic market focused companies too have slowed down due to notebandi.

This trend can be seen clearly in the chart below:

Earnings in Contrast with Market Trends

One must note that the actual performance for the last quarter of FY17 has been much below brokerage estimates.

All of this brings us to the question of how can one make money in a rising market, with little support from earning trends and with brokerages getting it all wrong?

I believe a few super investors could provide the clue. These are the guys who've beaten the markets black and blue and have an eye for multi bagger stocks irrespective of the macro environment.

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To know more about these superinvestors and their stock picking approach, download a free copy of - The Super Investors Of India.

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