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Informist, Tuesday, Aug 20, 2024

By Noel John

MUMBAI – Benchmark indices ended higher today, led by gains in shares of banking and financial services companies that rebounded from a fall on Monday. The indices had opened the day higher taking cues from their global counterparts and remained steady throughout the session.

The Nifty 50 and the Sensex today closed at 24698.85 points and 80802.86 points, respectively, up 0.5% each from Monday's closing levels. The 50-stock index is expected to face resistance at 25000 points, and find support at 24550–24450 points.

There is further scope for upside in indices due to the country's robust GDP growth of around 7%, better-than-expected monsoon, moderation in inflation, anticipated rate cut in the US, and massive inflows into equities from new investors, said Chokkalingam G., founder of Equinomics Research.

"With underlying positive macros, stable commodity prices and resilient corporate earnings, we retain our positive stance on domestic markets. We believe any dips should be used to build a long-term portfolio of quality stocks," ICICI Direct Research said in a report today.

However, key risks such as geopolitical flare-ups, whether between the US and China or in the West Asia, could disrupt the constructive tone, Motilal Oswal Financial Services said in a report today. "The 2024 (US) election is starting to heat up, and political uncertainty has the potential to drive bouts of volatility in the months ahead," the brokerage added.

Among banking, financial services, and insurance companies, SBI Life Insurance Co, HDFC Life Insurance, Shriram Finance, IndusInd Bank, and Bajaj Finance were the top gainers in the Nifty 50 index. Expectation of a rate cut by the Reserve Bank of India in September could fuel a further rally in banking and financial services stocks, said Saral Seth, vice president of institutional equities at IndSec Securities.

Seth expects the RBI to cut its policy rate by 25 basis points at its meeting in September after the inflation print for July fell below the central bank's target of 4%, and also if it stays below that level in August.

The insurance sector is expected to do well in the coming 2–3 quarters on 25-30% annual premium equivalent growth and strong value of new business margins, Seth said. He expects a 15-20% upside in shares of Bajaj Finance as the company is planning an initial public offering of subsidiary Bajaj Housing Finance. "We believe the stock could re-rate on this development as it could lead to strong value unlocking for the company in the medium term," Seth added.

IndusInd Bank ended higher and was one of the top gainers in the Nifty 50 after the Reserve Bank of India gave approval to the bank to set up a wholly owned subsidiary to carry out the asset management business of mutual funds. The bank's entry into the mutual fund space would make it the 45th asset management company in the country. "While this development is positive at the margin, the extent of the impact on IIB's (IndusInd Bank's) valuations is not expected to be significant over the medium term," Nomura said in a report today.

Allcargo Logistics ended higher by over 9% after the company reported an on-year growth in shipping volumes. The logistics company's less-than-container load volume rose 5% on year and 6% on month to 818,000 cu mtr in July, and was almost the same as its highest ever monthly volume recorded in August 2022.

Shares of Polycab India and KEI Industries rose after brokerage firm UBS reportedly initiated coverage on the companies with a 'buy' rating. The brokerage believes the supply and demand dynamics in the cable and wire sector will benefit industry leaders such as Polycab and KEI Industries, according to various media reports.

Saraswati Saree Depot listed at 194 rupees on the National Stock Exchange, a premium of 21% to the issue price of 160 rupees. The stock hit the upper circuit and closed at 203.70 rupees. The stock was fairly priced given the company's working capital requirements as well as its robust fundamentals and financials, said Akriti Mehrotra, equity research analyst at BP Wealth.

The broader market indices ended higher, outperforming the benchmark indices. "Broader markets earnings outperformance trend continued with mid and small caps reporting better earnings growth than headline Nifty index," ICICI Direct Research said in the report. In the June quarter, Nifty's net profit growth came in at 5% on year, while the same for their midcap coverage was 12.5% and their small-cap coverage stood at 21.4%, the brokerage said.

On the downside, shares of shipbuilding companies were among the major laggards. Shares of Mazagon Dock Shipbuilders and Garden Reach Shipbuilders & Engineers fell the most on the Nifty 500 index. The valuations of these stocks are very expensive and require further correction, said Jyoti Gupta, research analyst at Nirmal Bang Institutional Equities.

The analyst had downgraded the defence sector to 'sell' earlier this month due to extremely steep valuations relative to sector fundamentals. The orderbook of these companies remains strong, but converting these into revenue is the challenging part, said Gupta of Nirmal Bang. The first two quarters of a financial year are historically weak for these companies due to delays in deliveries owing to multiple factors, including heavy monsoon, the analyst said.

* Of the Nifty 50 stocks, 39 rose and 11 fell

* Of the Sensex stocks, 25 rose and 5 fell

* On the NSE, 1,729 stocks rose, 996 fell, and 78 were unchanged

* On the BSE, 2,371 stocks rose, 1,561 fell, and 105 were unchanged

* Nifty PSU Bank: up 1.7%; Nifty Financial Services: up 1.1%; Nifty Media: down 0.3%

BSE                                               NSE
Sensex: 80802.86, up 378.18 pts or 0.5%           Nifty 50: 24698.85, up 126.20 pts or 0.5%

End

Edited by Akul Nishant Akhoury

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