61% of BSE500 constituents delivered positive returns this week, do you own any?

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In the week just concluded Indian markets remained cautious on concerns over developments in Afghanistan, amid expectation of a potential shift in US Federal Reserve policy in a speech at Jackson Hole Economic Symposium and monthly derivative expiry. Despite all the constraints benchmark equity indices logged strong gains during the week and continued their record-breaking spree. The Sensex and Nifty ended at record closing high after scaling record high. The Sensex closed above the 56,000 mark. The Nifty index settled above the 16,700 level.

For the week ended on Friday, 27 August 2021, the Sensex surged 795 points or 1.44% to settle at 56,124. The Nifty 50 index jumped 254 points or 1.55% to settle at 16,705. Even the market capitalization of all BSE-listed companies advanced to an all-time high of Rs 2,43,73,800.36 crore driven by an upbeat sentiment in equities. In the two days of market rally investors have gained Rs 2,20,292.05 crore.

“Post previous weeks volatility, Nifty started the week on a positive note as the global markets recovered which led to some positive sentiment. Market participants looked a bit perplexed on Monday, but the broader markets saw buying interest on Tuesday which led to an upmove in the index to march towards new highs again. In next couple of sessions, Nifty consolidated within a range till expiry, and it again resumed the momentum on the last day to end the week above 16700,” said Ruchit Jain of Angel Broking.

Broader markets

Unlike the past few weeks where the rally was primarily driven by large caps, this week even the mid and small cap participated in the rally. In fact, the broader markets outperformed the benchmark indices as the BSE MidCap index advanced 575 points or 2.54% to settle at 23,255. Whereas the BSE Small-Cap index rallied 526 points or 2.04% to settle at 26,284.

A closer look at the BSE500 index shows that 307 or 61% constituents of the index ended the week with gains. With a rally of 27.63%, Adani Transmission was the top performer of the week as its shares closed at Rs 1,433 on August 27 compared to Rs 1,123 on August 20. The New India Assurance Company (up 24.92%), Adani Total Gas (up 23.81%), ABB Power Products and Systems India (up 23.29%), Hindustan Aeronautics (up 22.64%) and Linde India (up 22.19%) were the other stocks that rallied over 20% this week.

“Mid and small cap stocks were in focus this week as value-buying led to a recovery in the sector leading to its outperformance,” said Vinod Nair, Head of Research at Geojit Financial Services.

Sudarshan Chemical Industries (up 18.46%), HFCL (up 18.27%), Sterling and Wilson Solar (up 17.99%), National Aluminium Company (up 15.88%), Venky’S (India) (up 15.50%), Esab India (up 15.50%) and Adani Power (up 15.43%) were other top gainers of the week.

Outlook

The Federal Reserve will start dialling back its ultra-low-rate policies this year as long as hiring continues to improve, Chair Jerome Powell said Friday, signalling the beginning of the end of the Fed’s extraordinary response to the pandemic recession. The Fed’s move could lead, over time, to somewhat higher borrowing costs for mortgages, credit cards and business loans. The Fed has been buying $120 billion a month in mortgage and Treasury bonds to try to hold down longer-term loan rates to spur borrowing and spending. Powell’s comments indicate the Fed will likely announce a reduction — or “tapering” — of those purchases sometime in the final three months of this year.

With the Federal Reserve’s annual Jackson Hole symposium over, market participants will look forward infrastructure output data for July will be released on 31 August 2021. India’s gross domestic product (GDP) for the second quarter will be released on 31 August 2021. Markit Manufacturing PMI for August will be declared on 1 September 2021. Markit Services PMI for August will be declared on 3 September 2021.

Auto stocks will be in focus as auto companies will start announcing monthly sales numbers for August starting from 1 September 2021. That apart the trend in global stock markets, the progress of monsoon, the movement of the rupee against the dollar and crude oil prices will dictate the trend on the bourses in the near term. Investment by foreign portfolio investors (FPIs) and domestic institutional investors (DIIs) will be watched.

ICICI Direct is of the opinion that going ahead large caps are likely to outperform which would gradually drive Nifty towards 17,000-17,200 in coming months. “Over the past 15 months, buying on decline strategy has worked well. We advocate sticking to the same strategy. Therefore, a temporary breather after ~8% rally over past four weeks would present incremental buying opportunity to build a quality portfolio from medium-term perspective,” stated a report released by ICICI Direct.

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