Mid and Small Caps steal the show

Mon, 26 Nov Closing

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Indices in the Indian equity markets remained within a narrow range during the final session as well. They thus ended the day nearly flat but with a slight positive bias. While the BSE-Sensex edged higher by around 30 points, gains on the NSE-Nifty came in at around 10 points (up 0.2%). BSE Mid Cap and BSE Small Cap indices however stole the limelight today, edging higher by close to 1% each. Nearly three stocks on the Sensex gained for every two that closed the day in the red.

While Asian indices closed mixed today, Europe is trading mostly in the red currently. The rupee was trading at Rs 55.9 to the dollar at the time of writing.

There wasn't any particular development of note that would account for today's mildly positive closing and also the bias towards Mid and Small Caps. At the same time, there isn't anything too negative either as most of it seems to be already priced into the stocks. We reckon that rather than getting into this positive and negative trend game, investors would be better off buying fundamentally strong stocks at good valuations as long term India does look like the place to be.

Activity in the domestic airline sector has picked up considerably ever since the Government allowed foreign players to have up to 49% stake in a domestic airline company. It is believe that some private airlines in the country are in touch with foreign carriers for sale of stakes and negotiations are at an advanced stage. The way the stock prices are moving, it can be argued that Jet Airways and Spicejet Ltd have emerged as the two top contenders. Their stocks closed higher by 10%-12% today. If any partnership does materialize, it will be a shot in the arm for the beleaguered sector that is going through some tough times on account of soaring fuel and interest expenses. The long term story though in terms of demand remains pretty attractive according to us.

Those who are worried about rupee's further fall should find comfort in the words from C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council. Mr Rangarajan argued that the rupee will continue to remain around its current levels as capital inflows would prevent it from depreciating further. Mr Rangarajan is also of the view that India's current account deficit should come down to around 3.5% by the end of this financial year on account of lower gold imports, better capital inflows and stable oil prices. We do hope that this is the case as higher current account deficit is not good for the country's forex reserves as also its currency. Over the long term, we do want the currency to have a stronger purchasing power and not weaker.