Selling pressure likely to continue in mid, small-cap stocks

This week mid- and small-cap stocks are likely to continue seeing selling pressure. However, benchmarks — the BSE Sensex and the NSE’s Nifty are likely to move in a narrow range with downward bias.

Third quarter financial performance from leading corporate houses will anchor the market movement.

Another important clue would be the inflation data, which will be out on Monday. Market participants expect the headline inflation rate based on wholesale price index unchanged at 7.2 per cent in December. If there is any moderation in interest rate, the market will react positively, as that would usher in rate cut hopes among Street players.

After Infosys Technologies’ stellar performance, that beat market expectations, market participants are now eyeing TCS, which is scheduled to declare their Q3 number on Monday. However, despite Infosys’ strong show, analysts are not betting big on other companies and rather expect a muted growth only.

Friday blockbusters

Friday would be the busiest day of the week, as index heavyweights such as Reliance Industries, ITC, HDFC Bank and Wipro are declaring their Q3 numbers.

The other set of significant numbers that will be declared next week are Axis Bank on Tuesday (January 15), Bajaj Auto on Wednesday (January 16), Hero MotoCorp and HCL Technologies on Thursday (January 17).

BNP Paribas expect revenue growth (excluding oil marketing companies) to slow to 8.4 per cent y-o-y for the third quarter, from 14-18 per cent in the past 3-4 quarters – reflecting both growth slowdown and moderation in commodity prices. It, however, estimates profit growth could pick up from 7-9 per cent in the past four quarters to 11.8 per cent.

Not all are bullish on India

With the Indian stocks trading at relatively rich valuations, not all analysts are betting on India.

According to Jefferies Equities Research, the valuation re-rating is without any change in actual or expected growth in the GDP or earnings data. “Given the constraints enforced by the twin deficits and weak fixed asset investment environment, a turnaround in growth is unlikely – something that will be sorely needed by the increasingly expensive market once reform news flow loses momentum.”

Similarly, Citi lowered its rating on Indian stocks to “underweight” from “neutral” citing growth concerns and said the Indian markets could move up only by seven per cent in 2013.

“The recent market rally has raised economic and political expectations and we fear the rebound in the economy, corporate risk appetite and the investment cycle will lag expectations,” it said, while cutting the domestic stocks to “underweight.”

Mid- and small-caps

Suddenly, the bullish sentiment towards mid and small-cap space started to peter out. Shares from these space are now feeling the selling pressure, as investors, particularly foreign institutions, adopting a risk-off strategy, as most of them had a sharp run-up. Even many domestic brokerages are advising investors to remain cautious on these stocks and book profits at least partially.

badrinarayanan.ks@thehindu.co.in