Markets Exhibit Strength, But Action Shifts To Individual Stocks

Broader indices are not running anywhere now, after a strong surge the last few months. The bellwether index is consolidating at current levels looking for further cues to take markets higher. But broadly earnings surprises and the rest of the good news are factored in the valuations.

As a result, the BSE Sensex that took off well last week started to meander lower during the week and slipped to 27,791 during the week, a loss of -0.10 per cent.

The frontline stocks are not in a mood to do much in the coming weeks, as bulls and bears are evenly poised. Although, bears are trying a lot to drive the markets lower, the bulls are still in control of the markets.

Foreign investors, too, are continuing the buy the Indian markets. Institutions are selling marginally and taking out some profits. Markets are likely to show better upward movements when institutions go easy on selling and turn buyers.

For now, investors should not bet on the trend of the markets, but concentrate on another segment that is likely to drive investor profit.

That is, individual stocks. The action clearly is now moved to stocks delivering earnings growth. Tata Metaliks zoomed 40 per cent last week as investors looked for value counters, and long-term earnings pickup. Equitas Holdings net surged to 64 per cent in Q1 as stock surged 3 per cent last week to Rs 182.  Biocon surged 15.28 per cent to Rs 807 on better earnings growth.

Brokerage firms, too, are showing surprising buoyancy as Motilal Oswal Financial Services surged 22 per cent to Rs 478 on better results. Centrum Capital, Emkay Global, IIFL and Edelweiss surged 15.4, 17.9, 15.78 and 11.22 per cent respectively.

Results surprises in individual stocks are the focus in the coming weeks. Investing activity has picked up in the last few months and that is driving up profitability of financial stocks. Financial stocks are clearly the favourites in the markets for now.

Both investing and domestic financing activity has been clearly picking up steam. This financial consumption theme should remain good in the coming years, and still has a lot of potential to provide solid returns in the coming years.

Further, buoyancy for the financial sector stocks has come from the news that the government has infused Rs 22,915 crore to meet capitalization of banks in the current fiscal. So, these are good times to remain invested in financial themes, and buy on dips when a correction takes place.

Now a bigger challenge for investors is to carefully pick out the grain from the chaff. Stock picking is going to take centre-stage as markets are clearly distinguishing the good companies from the also-rans. On the other hand, patience will also be tested when stocks you hold don’t move, while some others begin to run away. But if you have conviction in your counters, you should however hold on to the horses.

No question then. Investors have to clearly align their portfolios to the good companies that are posting decent results. The markets are ready to reward investors holding these counters. But there is no substitute for the good old homework of combing the markets for earnings outliers.