The Sensex rose by 4.3 per cent in the first week of December, staging a comeback after a slack in mid-November. The Indian economy grew by 8.9 per cent in the second quarter, higher than the expected 8.2 per cent. Another boost to the investor sentiment came from the IIP resurgence, as it registered a double-digit growth of 10.8 per cent in October, following two consecutive months of dip.
The global markets were propped up by the $111 billion Irish bailout, a crisis that had resulted in the market fall in November. Though most of the market cues remain positive, analysts advise caution on three fronts: selling by FIIs, high crude oil prices and rising inflation.
The markets may be a little shaky, but investors of MONEY TODAYValue Research model portfolios have no cause for concern as these continue to earn steady returns. Money Builder has given a return of 4.9 per cent since its inception. With three banking stocks in the top five holdings, this portfolio has the highest equity allocation of 20.25 per cent in the financial sector.
The second quarter results for the sector were satisfactory. However, according to Prabhudas Lilladher, the growth was led by an increase in lending rates, which resulted in higher yields, along with healthy current and savings account deposits.
However, it anticipates a 0.2 per cent erosion of profit margin due to the increase in deposit costs. Also, higher term deposit rates may result in the conversion of some low-cost bank deposits into term deposits. Though the report predicts profits to come under pressure in the coming quarters, it expects the sector to have a stable year-on-year growth in the next financial year. Energy, which comprises 14.07 per cent of the equity holdings, is the second most important sector in the portfolio. Brent crude prices crossed $88.7 per barrel in November.
However, Motilal Oswal believes that the higher prices of oil are due to speculation on the second round of quantitative easing by the US Federal Reserve, coupled with a weak dollar. Besides, uncertainties over deregulation and subsidy sharing policies can lead to under-performance of PSU oil companies. On the other hand, the report expects the gas stocks to perform well if the proposed gas pooling policy by the Ministry of Petroleum and Natural Gas is implemented.
The technology sector, which constitutes 9.63 per cent of the equity holding, saw a robust growth in the second quarter. According to Angel Broking, the return of large multiyear transformational deals, with a total contractual value of $100-800 million, have strengthened the IT companies.
Considering the positive outlook, many IT firms have raised their hiring expectations, confirming a period of sturdy deals in the future. Angel Broking expects the volume growth of these companies to sustain at 5-6 per cent CQGR (compounded quarterly growth rate) and, hence, remains optimistic about the sector.
The other portfolios have also performed well. The aggressive Wealth Maximiser, with 86 per cent funds in equity, has given the highest return of 6.4 per cent, while the debt-oriented Income Generator has earned a return of 4.1 per cent. The low-risk Stable Growth, which we shall study in detail in the next issue, delivered a return of 2.8 per cent.
FUTURE TRIGGERS
- The market may slide if FIIs pull out more capital.
- Easing of inflation from 8.58% in October to 7.48% in November will benefit the FMCG sector.
- Any margin expansion in the third quarter corporate results can boost the market.
- The global economy is likely to be impacted by the US growth rate for October-December.
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