Invest in quality as the rally is here to stay

Markets are cheering the ascendancy of Narendra Modi and announcement of a market friendly Cabinet could act as a greater catalyst.

The midcap and smallcap were on fire and so were some of the sectoral indices like realty, power, metal and consumer durable. The public sector was also a major gainer with double- digit gains.

Foreign institutional investors were back to buying and made purchase of Rs 1,625 crore for the week while domestic institutions sold shares worth Rs 971 crore. The previous government saw divestment driving down market sentiment and prices of concerned stocks. This time around the feeling is that during Modi's tenure as Gujarat chief minister, not a single public sector unit (PSU) in the state was divested. PSUs contribute in terms of taxes and also dividends and in the last year, some of the units were forced to give special dividends which was more than 100 per cent.

The expectation that the Gujarat style will be replicated at the national level saw the BSEPSU gain over 72 per cent in the last eight months compared

A market friendly Cabinet will boost the rally further

compared to the August 2013 close. In the same period, Sensex and Nifty gained 33 per cent and 34 per cent respectively.

I believe that the announcement of the Cabinet and policies in the next few days on market- related issues like divestment will act as fodder for the upswing to continue. The highs made on election results day of 25,375 on the Sensex and 7,563 on the Nifty would act as resistance in the short term while all other indices are way above these levels.

The IT, health care and FMCG are the three sectors which continue to be under pressure. Secondly, they are export earners with FMCG being largely a domestic player. Hence, an appreciating rupee is detrimental to the performance of these companies.

In such a scenario, it is but natural that the benchmark indices present a mixed picture with twothirds of the stocks at new highs.

(The writer is an investment analyst)

As appeared in Mail Today