Mid, smallcaps in favour today

Mon, 16 Jun Closing

   Previous Close   

   Pre-Open   

   09:30 am   

   11:30 am   

   01:30 pm   

After witnessing several bouts of buying and selling, the Indian markets ended the day on a marginally weak note. The BSE-Sensex closed lower by about 38 points or 0.2% today, while the NSE-Nifty closed lower by about 9 points or 0.1%. Stocks from the automobiles and engineering spaces were not in favor today, while those from the information technology and realty spaces were in demand. Market participants seem to have favoured midcaps and smallcaps today as the BSE Mid Cap and BSE Small Cap indices closed higher by about 0.4% and 0.3% respectively

Stock markets in other parts of Asia ended the day on a weak note with Japan and Hong Kong down by about 1.1% and 0.1% respectively. The rupee was trading at Rs 60 to the dollar at the time of writing.

Amongst the companies forming part of the BSE-Sensex Index, the top gainers were GAIL, TCS and Sun pharmaceuticals while Axis Bank, Mahindra & Mahindra and L&T were amongst the least preferred. The broader market sentiments were weak today as market participants did not seem happy about the latest development on the economic front. Inflation numbers (wholesale price index) for the month of May 2014 came in higher, rising to 6.01% as compared to 5.2% the month before. The number was higher mainly due to food and fuel prices. As reported by the Mint, during the month food inflation rose to 9.5% (8.64% earlier) while fuel inflation stood at 10.53% (as compared to 8.93%). This is the highest inflation figure seen in five months. During the same month last year, the number stood at 4.58%. It may be noted that retail inflation as measured by the consumer price index declined in the month as compared to the preceding month led by lower vegetable prices. If this trend continues for long, one can expect the easing of interest action to take long than anticipated. During its latest monetary policy, the RBI governor left the interest rates untouched, while its eased the liquidity situation by lowering the statutory liquidity ratio or SLR by 0.5% to 22.5%.

In one of our latest editions of the 5-Minute Wrap Up, we had written about how investors should be way of the 'debt repayment theme' when buying stocks from a long term perspective. We came across an article in the Business Standard which covered a similar story. It seems that more than a third of Indian companies are finding it difficult to service their debt obligations. It is believed that nearly 36% of the companies have interest coverage ratios of less than 1 times, which means that the amount of interest payments that have to make are higher than what they make from their operations. Given the way how the stocks of debt heavy companies have run up in the past, it would be easy for investors to be lured by the same. However, we believe investors would be better off sticking to companies with much better balance sheets by paying slightly higher premium in terms of valuations as compared to buying such stocks available for mouth watering valuations.