Some experts feel the market may be pricing in some part of future earnings growth and that is the reason for it rallying without major correction
The rally that started in the week ended July 27 is still ongoing, despite intermittent consolidation, as not only frontline (Sensex and Nifty) indices but even broader ones (Midcap and Smallcap) participated in it.
The major reason behind this uptick was Q1 earnings, which were more or less in line or better-than-expected. Other reasons include stability in the rupee and crude oil prices, positive global cues and easing of US-China trade tensions for the time being.
All these factors boosted investors' sentiment, which in turn pushed the Sensex and Nifty 5 percent higher each in five weeks, but broader markets ran ahead of frontline indices.
The Nifty Midcap index climbed 8 percent, while the Smallcap and Nifty500 climbed 7 percent and 6 percent, respectively, during the period.
Some experts feel the market may be pricing in some part of future earnings growth and that is the reason for it rallying without major correction.
"Earnings is always the foundation of market but apart from that, other factors are liquidity, fund flow, political situation, world economy and US economy," Raamdeo Agrawal, Co-Founder of Motilal Oswal Financial Services, told CNBC-TV18.
Experts largely expect earnings to grow by between 15 percent and 25 percent in FY19, followed by around 20 percent in FY20.
Sharekhan said that after the June quarter results, Sensex earnings are expected to report a 20-22 percent CAGR over FY2018-FY2020. Healthy growth is contingent on the easing of asset-quality issues for corporate lenders and normalisation of their earnings.
Given recent recoveries, management commentary and the record valuation gap between the private sector, retail banks, and corporate lenders, it might be a good idea to start nibbling on some of the quality corporate banks for an 18-24 month investment horizon, it advised.
“Moreover, we would suggest exploring opportunities in the industrial and quality midcap space now. We remain constructive on the consumption-driven sector, Retail, and IT Sectors,” Sharekhan said.
About 80 percent of all the stocks in each index -- Nifty50, Nifty Midcap and Nifty Smallcap -- participated in the rally seen over the last five weeks, which showed how earnings could drive stock prices.
Raamdeo Agrawal of Motilal Oswal Financial Services says earnings are always the foundation of the market.
Among midcaps, 16 stocks rallied between 20 percent and 60 percent in five weeks, including Indiabulls Ventures, Aditya Birla Fashion, Dilip Buildcon, United Breweries, Bata India, Adani Power, Reliance Capital, Info Edge, NALCO.
Apart from these stocks, NBCC, Wockhardt, Union Bank, Bank of India, Voltas, AU Smallcap Finance Bank, Tata Chemicals, and Bharat Forge, among others, gained 10-19 percent during the same period.
In five straight weeks, 74 out of 100 smallcap stocks ended in the green, of which the top 20 stocks rose by between 20 percent and 52 percent.
HCC, Reliance Communications, VIP Industries, Bombay Burmah, Capital First, PTC India, Vijaya Bank, NCC, Bombay Dyeing, Godfrey Phillips and Delta Corp are among these 20 stocks.
The rally in the Nifty 500, which generally covers all sectors available on the exchange, was led by 384 stocks that gained up to 89 percent in five weeks.
Among them, the top 20 stocks, which include Kwality, HDIL, Welspun Corp, Marksans Pharma, VIP Industries, Shilpa Medicare, JBF Industries, Jindal Poly Films, and Sunteck Realty, among others, surged 32-89 percent.
The rally in the benchmark Nifty50 was driven by banks, metals, pharma, and index heavyweights.
The top 16 stocks among Nifty constituents climbed 10-24 percent. These include ICICI Bank, Axis Bank, Dr Reddys Laboratories, SBI, Tata Steel, Lupin, ITC, and Reliance Industries.
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
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