Investors are casting around for the next set of growth stocks to propel the market once the current bout of correction runs its course.
Sensex Key constituents of the benchmark Sensex such as Reliance Industries and large banks that face margin pressures are not among the most favoured by investors at present and the index is down 9% in the past couple of weeks despite most companies posting higher earnings.
Reliance Industries and three banks — SBI, ICICI Bank and HDFC Bank — together accounted for about 35% of the 9,000-plus point rise in the Sensex between March and mid-October this year. But near-term outlook for these index heavyweights is far from rosy, and market watchers are worried that a likely underperformance in these stocks could weigh down the index as well as the overall sentiment, when the markets open for trading on Tuesday.
“It is not about three or four sectors... a short-term correction is imminent,” said Ved Prakash Chaturvedi, managing director of Tata Mutual Fund. “If you look at the latest quarterly numbers, it is clear that companies are not exactly galloping out of the slowdown. The correction could continue for some more time, though it is unlikely to be a steep one because of the global liquidity on the sidelines,” Mr Chaturvedi said.
Key indices have fallen in seven out of the last eight trading sessions, with the fall aggravated by indications of a rise in interest rates shortly and disappointing quarterly numbers from Reliance Industries. Market experts feel near-term weakness in the market as a whole will be led by global factors rather than domestic.
“Global investors have made decent profits (in India) over the past few months and will be looking to encash a part of that because the outlook on the global economy still remains hazy,” said A Balasubramanian, chief executive and chief investment officer of Birla SunLife Mutual Fund.
Banking stocks have been the worst performers in the recent meltdown. The BSE Bankex has fallen nearly 9% in the last one week after the Reserve Bank of India in its monetary policy raised the amount of money that banks have to set aside for non-performing loans to 70%, and set a deadline of September 2010 to adhere to the rule. The central bank also indicated that interest rates are set to rise shortly, which market watchers fear will hurt demand for loans, and hence, the revenues of banks.
“In a scenario of higher interest rates, banks could underperform,” Mr Chaturvedi said.
But Mr Balasubramanian feels the market is pricing in a worst-case scenario for banks. “Most of the high-cost deposits that the banks had raised last year have already started maturing; this will almost halve their cost of funds, and boost net interest margins. In a scenario where credit growth will pick up as the economy gathers steam, banks are a good bet,” he said.
Sensex Key constituents of the benchmark Sensex such as Reliance Industries and large banks that face margin pressures are not among the most favoured by investors at present and the index is down 9% in the past couple of weeks despite most companies posting higher earnings.
Reliance Industries and three banks — SBI, ICICI Bank and HDFC Bank — together accounted for about 35% of the 9,000-plus point rise in the Sensex between March and mid-October this year. But near-term outlook for these index heavyweights is far from rosy, and market watchers are worried that a likely underperformance in these stocks could weigh down the index as well as the overall sentiment, when the markets open for trading on Tuesday.
“It is not about three or four sectors... a short-term correction is imminent,” said Ved Prakash Chaturvedi, managing director of Tata Mutual Fund. “If you look at the latest quarterly numbers, it is clear that companies are not exactly galloping out of the slowdown. The correction could continue for some more time, though it is unlikely to be a steep one because of the global liquidity on the sidelines,” Mr Chaturvedi said.
Key indices have fallen in seven out of the last eight trading sessions, with the fall aggravated by indications of a rise in interest rates shortly and disappointing quarterly numbers from Reliance Industries. Market experts feel near-term weakness in the market as a whole will be led by global factors rather than domestic.
“Global investors have made decent profits (in India) over the past few months and will be looking to encash a part of that because the outlook on the global economy still remains hazy,” said A Balasubramanian, chief executive and chief investment officer of Birla SunLife Mutual Fund.
Banking stocks have been the worst performers in the recent meltdown. The BSE Bankex has fallen nearly 9% in the last one week after the Reserve Bank of India in its monetary policy raised the amount of money that banks have to set aside for non-performing loans to 70%, and set a deadline of September 2010 to adhere to the rule. The central bank also indicated that interest rates are set to rise shortly, which market watchers fear will hurt demand for loans, and hence, the revenues of banks.
“In a scenario of higher interest rates, banks could underperform,” Mr Chaturvedi said.
But Mr Balasubramanian feels the market is pricing in a worst-case scenario for banks. “Most of the high-cost deposits that the banks had raised last year have already started maturing; this will almost halve their cost of funds, and boost net interest margins. In a scenario where credit growth will pick up as the economy gathers steam, banks are a good bet,” he said.
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