Market Turns to Defensives as FIIs Turn Jittery

The data heavy week saw benchmark indices edge lower on back of reversing foreign fund flows and weak macro economic numbers. Third quarter corporate earnings results season got a healthy start, kicked off by information technology (IT) giant Infosys on Friday. Analysts across the spectrum remained upbeat to cautiously optimistic on India’s second largest software services provider’s prospects of a turnaround after its latest set of numbers.

The 30-share Sensex of the Bombay Stock Exchange (BSE) was down 92.84 points or 0.45% at 20758.49 while the broader 50-component National Stock Exchange benchmark Nifty finished the week 0.63% 39.70 points lower at 6,171.45.
Broader markets remained mixed as BSE Mid-Cap index underperformed the benchmark with a 1.17% fall while Small-Cap index added 0.25%, outperforming the Sensex.

The week began on a sombre note for equity investors after HSBC Services Purchasing Managers’ Index (PMI), compiled by Markit, fell to 46.7 in December from 47.2 in November. A print below 50 signals contraction and above 50 shows expansion. Services PMI for the month was lowest in last three months and the reading has stayed below the 50 mark for the sixth straight months now.

Growth concerns along with US Federal reserve beginning its stimulus rollback (tapering) in the month of January prompted foreign institutional investors (FIIs) to turn sellers of Indian equities after flooding Indian equity market with hot money in 2013. Foreigners bought shares worth Rs 1,11,920 crore ($ 20 billion) in 2013. FII remained net sellers of stocks worth Rs 450 crore in the week gone by, provisional data from SEBI shows.

Starting January, the US central bank (US Federal Reserve) will cut its monthly bond purchases to $75 billion from $85 billion earlier. This is likely to constrict the flow foreign funds landing on shores of emerging markets such as India.

Winners and laggards

Fearing a trend reversal in FIIs fund flows, investors sought refuge in defensives FMCG , Healthcare and IT shares. BSE Healthcare, up 2.31%, was the top gainer among the sectoral indices tracking stocks of different industrial sectors on the BSE. BSE FMCG up 1.41%, and IT up 0.9% were other top gainers.

Cadila Healthcare was the top gainer in the index surging a massive 11.6% to Rs 779.75. Cipla (up 1.57%), Sun Pharmaceutical Industries (up 5.13%) and Dr Reddy's Laboratories were other top gainers from the healthcare index.
From the BSE FMCG index which was up 1.4%, Dabur India, United Breweries and United Spirits were the top gainers surging 3.5-4.1% higher.

Sun Pharma, Dr Reddy’s Labs (up 5%) followed by Coal India (up 3.9%) and TCS, ONGC and GAIL adding between 2.5-2.9%, remained the top Sensex gainer this week.

Axis Bank, Hindalco and Tata Steel off 7%, followed by SBI and L&T which were down between 5.5- 6.2% remained the top laggards this week.

In Focus

Infosys remained in focus as the company declared its December quarter results on Friday. D-street remained cautiously optimistic over signals of a turnaround in the IT major as stock witnessed an 2.8% uptick on Friday but remained subdued in the overall week.

Infosys raised its rupee and dollar revenue guidance for FY14 in its Q3 FY14 results, which were slightly better than street expectations.

It reported 19.4% quarter-on-quarter growth in consolidated net profit at Rs 2,875 crore in the third quarter. Analysts on an average had expected net profit of Rs 2,681 crore for the quarter.

The consolidated net revenues came in at Rs 13,026 crore, up 0.5% sequentially, the country’s second-largest software services provider said in a statement. Consolidated dollar revenue came in at $2,100 million.

Also, trade deficit last month narrowed to $10.1 billion, compared to $17.2 billion in the year-ago period, according to data released by the commerce ministry on Friday. This boosted the sentiment on Friday which coupled with Infy’s results gave the street a reason to cheer sending key benchmarks higher. But the joy was short-lived as investors turned cautious and booked profits at higher levels ahead of November index of industrial production (IIP) data slated to be released later in the day. Industrial production contracted by 1.8% in the month of October primarily led by slowdown in manufacturing.

Eye ahead

Capital goods stocks will now be in focus after November industrial production data released post market hours on Friday showed a massive decline.

The Index of Industrial Production (IIP) dipped 2.1 per cent in November against a contraction of 1 per cent a year ago.

Capital goods production was the worst hit due to inflationary pressure. The sector contracted 21.5 per cent in November against 1.1 per cent growth a year ago.

The contraction in production was mainly led by a decline in output of manufacturing, which occupies the largest share in the industrial production

Inflation data points next week will be show stopper next week in terms of triggers, along with the slew of earnings. Owing to cooling off of key vegetable prices such in December food inflation could start to moderate and it is expected to bring down Whole sale Price Indexed inlation figures. C Rangarajan, Chairman of Prime Minister's Economic Advisory Council, expects WPI to come down to around 6-6.5% in December.

HDFC Bank, ITC, Wipro, Axis Bank, TCS, Bajaj Auto are the major heavyweights to come out with their third quarter results in the coming week. Stock-specific activity could dominate the headlines.

On the levels to watch out for next week Rahul Shah, Vice President, Equity Advisory Group of Motilal Oswal says “Post breaking down from a Rising trend line on the daily scale Nifty has still managed to sustain above the significant support of 6120. It oscillated within a narrow range throughout the week, within the band of 6120-6240. For the coming week, 6240-6360 is the likely resistance zone. Traders are advised to exercise caution while trading on the long side & enforce strict stop loss at 6120 going forward. A failure of this support could push Nifty towards 5920.”

US payrolls in December increased at the slowest pace since January 2011, indicating a pause in the recent strength of the US labour market. This is likely to give US Fed second thoughts to increase the pace of tapering going ahead.

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