The Indian stock market ended on a weak note, amidst sessions marked by volatility during the week, with the Sensex and Nifty ending lower by 1.4% and 1.5%, respectively. BSE mid-cap and small-cap indices also witnessed a decline but, on a comparative basis, outperformed their large-cap counterparts by ending lower by 0.3% and 1% during the week. The market traded in a narrow range but finally declined to close below the psychological mark of 18,000 on the BSE index. Factors such as the ongoing earnings season, mixed cues from European and US markets, Central Bank's decision to raise short-term interest rates and drop in food inflation to 9.7% weighed on investors' sentiment during the week. On the sectoral front, the performance was mixed, as there were equal number of sectors gaining and losing, with the BSE capital goods index and BSE oil and gas index losing the maximum of 4.8% and 3.5%, respectively. On the gaining side, BSE Bankex and the BSE FMCG index gained the most by 0.4% each.
BSE Bankex outperforms
The BSE Bankex outperformed the Sensex this week, ending up by 0.4%, as against the 1.4% decline of the Sensex. A large part of this outperformance was driven by strong movement in HDFC Bank, which was up on account of good 1QFY2011 results announced in the last week. On July 27, RBI's move on expected lines provided a sentimental comfort to banking stocks. Among others, BOB, BOI and PNB gave returns in the range of 2-4%. We maintain our positive outlook on the sector and retain HDFC Bank, ICICI Bank, Axis Bank and SBI as our top picks among the large caps; among the midcaps, we recommend Dena Bank and Uco Bank.
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RBI Policy Review: With an objective to control inflationary expectations, the RBI’s has raised the repo and reverse repo rates by 25bp and 50bp to 4.50% and 5.75%, respectively. The reduction in the spread between repo and reverse repo rates to 125bp (compared to 300bp in 2QFY2009) indicates the RBI's comfort on liquidity situation.
Dena Bank -1QFY2011 Result Update: In 1QFY2011, Dena Bank reported net profit growth of 20.7% yoy, ahead of our estimates, on account of higher-than-expected growth in net interest income. However, the sequential increase in gross NPAs was a key negative from the results. We maintain a Buy on the stock with a Target Price of Rs114.
