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Informist, Monday, Sep 9, 2024

By Anshul Choudhary

MUMBAI – Strong domestic inflows are likely to have helped benchmark equity indices recover slightly from Friday's fall despite global markets being weak, analysts said. Investors bought shares of companies largely dependent on domestic demand, such as fast-moving consumer goods and banks, even as concerns of a slowdown in the US economy led to a fall in US and Asian markets.

Domestic indices opened lower and the Nifty 50 dropped 100 points in early trade after US job additions in August came in weaker than expected. However, the Nifty 50 bounced back from its support level of 24750 points to end at 24936.40 points.

"Liquidity in India is helping us recover from global and domestic disappointments," the head of research at a top domestic brokerage house, said, requesting not to be identified. He said India was benefiting from its current position where GDP growth was relatively higher than that in several emerging market economies.

Shares of fast-moving consumer goods were the top gainers, with Hindustan Unilever rising nearly 3%, its highest single-day rise in three months. Shares of FMCG stocks gained due to hope of better rural demand in the latter part of this financial year. However, a large part of earnings growth is largely priced into stock prices, analysts said.

"The first leg of the rally in FMCG companies were (was) driven by expectations of rural demand. We also expect strong third and fourth quarters. But, if they don't perform, it will be disappointing," said Vishal Gutka, vice-president of HDFC institutional research, who covers the consumer sector. He said the recent fall in crude oil prices was also positive for the sector and if prices stayed at these levels for an extended period, it could help reduce raw material costs for several industries. Brent crude November futures fell nearly 10% last week. At 1632 IST, crude futures were at $71.66, up nearly 1%.

Among FMCG stocks, shares of Godrej Consumer Products, United Spirits, and Dabur India rose around 3% each, and index heavyweight ITC rose 2%. Owing to this, the Nifty FMCG gained 2% to 64465.85 points, its highest closing level yet.

Shares of FMCG companies were up after a few companies announced investments over the weekend. Britannia Industries said it planned to spend 3 bln rupees to expand capacity at its Ranjangaon bakery unit by 60,000 tn per annum. Marico said it would buy the remaining 40% stake in Apco Naturals, which makes personal and beauty care products, for 700 mln rupees. Both stocks ended nearly 2% higher.

Several private banks recovered from Friday's fall and helped benchmark indices post gains. Shares of index heavyweight ICICI Bank rose 2% after declining by the same quantum on Friday. Today, the stock ended at 1,235 rupees.

While shares of private banks managed to recover, high valuations of public sector pushed investors to continue to book profits. Bank of India fell over 2% and Punjab & Sind Bank, Central Bank of India, and Bank of Maharashtra closed over 1% lower each. State of India rose 0.2% after declining over 4% on Friday. The Nifty PSU Bank index began the week on a negative note, falling 0.2% after declining over 5% during the previous two weeks.

Analysts voiced caution on banking stocks despite today's gains. They said banks' net interest margins might fall in the coming quarters once the Reserve Bank of India cuts interest rates. Further, rising credit costs and slower growth in deposits may bring down banks' earnings growth.

While banks and FMCG stocks gained, weak global cues affected sectors that are dependent on global demand. Metal and energy stocks such as Hindalco Industries, NTPC, and Bharat Petroleum declined over 1% each. Moreover, information technology stocks declined, with Tech Mahindra down nearly 3%.

The fall in crude oil futures is expected to bring down costs for most companies in India, but it is negative for oil exploration companies. Oil and Natural Gas corp fell to 298.90 rupees, down over 3% today, the worst hit Nifty 50 stock. With this, shares of ONGC have fallen nearly 10% in six sessions.

Oil prices sustaining around $71-$72 per bbl for a longer time could negatively impact ONGC's earnings per share by 5% in Jul-Sep, even after the recent windfall gains tax reduction by the government, said Swarnendu Bhushan, research analyst at Prabhudas Lilladher. However, he said the valuation appears attractive after the recent correction and this would be an ideal point for entry as oil prices are expected to bounce back from lower levels in the coming weeks.

Among others, shares of Tata Motors declined over 1% after the company trimmed prices of the entry-level models of six of its key vehicles – Tiago, Tigor, Altroz, Nexon, Harrier, and Safari – by up to 180,000 rupees. The stock closed at 1,038.70 rupees.

While large-caps were mostly up, mid-caps and small-caps declined. Several stocks in the broader market were trading at expensive valuations and a correction is long overdue, analysts said. The Nifty Smallcap 250 fell 0.8%, and the Nifty Midcap 150 ended 0.3% lower. Among mid-caps, Bharat Dynamics and SJVN were the worst, while General Insurance Corp of India and Gujarat Fluorochemicals rose the most.

Expensive valuations pushed investors to sell stocks in the railways and defence sectors. Shares of Jupiter Wagons closed 7% lower, while those of Bharat Dynamics, DCX Systems, and Garden Reach Shipbuilders & Engineers closed 2-4% lower.

* Of the Nifty 50 stocks, 26 rose and 24 fell

* Of the Sensex stocks, 17 rose and 13 fell

* On the NSE, 1,104 stocks rose, 1,687 fell, and 79 were unchanged

* On the BSE, 1,650 stocks rose, 2,390 fell, and 141 were unchanged

* Nifty FMCG: up 2%; Nifty Bank: up 1.1%; Nifty Oil & Gas: down 1.4%

BSE                                               NSE
Sensex: 81559.54, up 375.61 points, or 0.5%       Nifty 50: 24936.40, up 84.25 points, or 0.3%

End

Edited by Avishek Dutta

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