Sensex up 2% in June, outperforms its global peers

Bulls were back in June, with the markets surging nearly 2% on mainly robust FII inflows, easing Greece worries, fall in crude oil prices and good monsoon

Major news for the month

RBI raises repo, reverse repo by 25 basis points

Inflation in May at 9.06% versus 8.66%

India's Q1 corporate tax intake soars 77%

April IIP at 6.3% versus 7.3%

Economy to grow 8.5%: FM



Indian indices

The month of June 2011 brought some relief for Indian investors, with the key indices rising nearly 2% after two months losses. For the month, the markets remained buoyant despite weak global performance. Increasing foreign institutional investor (FII) inflows during the month helped the markets remain strong, shrugging off all negative news.

Markets also rejoiced a steep fall in crude oil prices. Adding to the positive trend, a hike in fuel prices improved the sentiments among oil & gas companies, leading to strong gains in the Oil & Gas index. The government hiked the price of diesel by Rs3 a litre, kerosene - Rs2 a litre and cooking gas by a steep Rs50 a cylinder, lifting the oil marketing companies (OMCs) shares to a major extent.

Markets also faced tough times in June. Widening probe into the 2G scam, disappointing Reliance Industries Ltd (RIL) AGM and global economic slowdown weighed on the sentiments.

On the other hand, monsoon progress is in line with expectation and is comforting to some extent given the current high food inflation.

Month of June was overall a bumpy ride with the markets facing both tough and easy times. On one hand, FII investments in Indian markets boosted sentiments, while on the other hand, global economic slowdown disrupted sentiments. Federal Reserve Chairman Ben Bernanke acknowledged a slowdown in the economy, which increased fears over the health of world economy. Markets also witnessed a severe fall on concerns over India-Mauritius tax treaty, hitting their lowest level in four months. On the other side, the approval of an aid payment to Greece eased euro zone debt worries. Europe’s finance ministers authorized an 8.7 billion-euro ($12.7 billion) loan payout to Greece by mid-July.

On the economic data front, slower April industrial output growth at 6.3% and higher-than-expected May inflation data at 9.06% appeared to be a drag on the markets. To control stubbornly high inflation, the RBI raised its repo and the reverse repo rate by 25 basis points each for the 10th time in 15 months in the monetary policy review. Finance Minister Pranab Mukherjee said that the economy will grow by 8.5% in 2011-12 which provided some relief to investors.

Major stock movements for the month were seen in the shares of oil companies, auto and 2G-scam related stocks. Shares of Sun TV had plunged over 28% while SpiceJet had declined 16% in a day on media reports that a Public Interest Litigation (PIL) had been filed against DMK leader and former Union Telecom Minister Dayanidhi Maran to probe allegations of bribery and corruption. Maruti Suzuki’s shares remained under pressure on reports that the strike by workers of the company's plant in Manesar in Haryana could spread across the auto belt of Haryana. Nearly 2,000 workers at Maruti's factory at Manesar in Haryana began a strike early month of June demanding recognition of their union, Maruti Suzuki Employees Union. RIL slipped to a 26-month low, losing about 9% in a week on reports that the company was shown undue favour over its KG basin block causing huge loss to the exchequer. GTL had crashed to a record 62% on reports that speculation lenders sold GTL stock pledged with them by the company’s founders.

The Sensex swung 1559 points between a monthly high of 18873 and a monthly low of 17314. The Nifty swung 462 points between a monthly high of 5658 and a monthly low of 5196. Wrapping off the month, the Sensex rose 1.85% or 341 points to close at 18846 and the Nifty stood at 5647, up by 1.57% or 87 points.

Sectoral and stock screening

Eight sectors rallied, while five fell in the month of June. Top three monthly sectoral gainers - BSE Capital Goods (CG) rose by 6.21%, BSE Fast Moving Consumer Goods (FMCG) surged by 4.85% and BSE Bankex up 2.22%. Top three monthly sectoral losers - BSE Realty declined 7.26%, BSE Oil & Gas fell by 4.02% and BSE Metal down by 2.27%.

Going into 'A' group stocks, top three gaining stocks - Videocon Industries surged by 16.65%, Idea Cellular rose by 16.51% and Pantaloon Retail gained by 16.44%. Top three losing stocks - Lanco Infratech slid by 31.03%, GVK Power & Infrastructure dropped by 15.35% and Educomp Solutions lost by 15.34%.

Global signals

The Sensex outperformed its global peers in June by gaining 1.85%. Hang Seng appeared to be the worst performer for the month, down by 5.43%. US markets fell, while European and Asian markets closed mixed in June.

FII/MF activity

The FIIs played a prime role in lifting the markets higher. The FIIs have bought Indian stocks worth a net of Rs4,571.9 crore in June as compared to net sell of Rs6,614.3 crore seen in May. The domestic institutional investors (DIIs) continued its buying trend in June as they purchased Indian shares worth a net of Rs1,201.1 crore as against net buy of Rs401.3 crore seen in May.

Outlook

Markets have recovered most of its losses on the back of falling commodity prices and easing of debt crisis in Europe. In the past few months, the markets have been able to absorb multiple negative news flow but remained in a fairly narrow range of 500 off points on the Nifty. We expect some stock specific volatility in July, driven by Q1 results. However, the benchmark indices are likely to maintain sideways movement. We view the on-going range bound movement as a consolidation phase. Peaking out of interest rate hikes and bottoming of the earnings downgrades would be a key factor that could propel the markets to a higher range, whereas the risk emerges from further weakness in global cues and stickier than expected inflationary scenario domestically.