Sensex near 35K, bank stocks on fire

The frenzy in the stock markets saw the S&P BSE Sensex, India’s key equity index, come very close to scaling the 35,000-mark. Intra-day, the index, which has risen nearly 1,000 points in less than a fortnight, was just 35 points short of Mt 35K.

Monday’s rally, which mirrored gains in the US markets last Friday, was supported by domestic private banking stocks, which are on a historic upward trajectory.

Market players expect the Sensex to trade significantly above the 35,000-mark in the coming days. The index closed at 34,843. The broader index CNX Nifty of the NSE rose 0.56 per cent or 60.3 points to close at 10,741.

Monday’s sharp rise in share prices saw HDFC cross ₹3 lakh crore market capitalisation for the first time. HDFC rose 6.7 per cent to ₹1,869 on the back of news that it was raising up to ₹13,000 crore through qualified institutional placement and preference issue.

GIC Singapore, KKR and Premji Investment would be a few takers for HDFC’s issue, the company revealed. Foreign research houses CLSA and Bank of America Merrill Lynch raised their targets on the stock. Another research house Morgan Stanley (MS) resumed coverage on HDFC with a recommendation of ‘overweight’ and kept a target price of ₹2,030.

According to Bloomberg data, of the 38 brokers tracking HDFC, 31 recommended a “buy” rating, two have “sell”, and five “hold” ratings.

HDFC Bank, ICICI Bank and Kotak Bank were the other top gainers in the index, rising between 1.5 per cent and 3.73 per cent.

A research note from Morgan Stanley said, “The big story of 2018 is likely to be large Indian corporate lenders.”

The research said concerns around asset quality and weak profitability have dogged the performance of banking stocks, but this is set to see a turnaround meaningfully over the next few months.

“Banks stocks offer both re-rating and compounding — driving returns. We see >50 per cent returns owning ICICI Bank here. While we are positive on Asian banks in 2018, no other large-cap bank offers > 50 per cent upside after a strong 2017.”

MS said its top picks among retail lenders are HDFC Bank, Kotak and HDFC and the theme for 2018 among Indian financials is own large-cap financials.

Monday saw subdued activity from foreign portfolio investors and domestic institutional investors and the rise was mainly on the back of buying by retail and high networth investors. FPIs bought stocks worth ₹33 crore and DIIs were net sellers of shares worth ₹173 crore in the cash market. In the derivative segment too, FPIs sold index futures worth ₹554 crore and stock futures worth ₹85 crore. But they were buyers of stock futures worth ₹1,670 crore and stock options worth ₹113 crore.

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