The better-than-expected earnings of Tata Consultancy Services (TCS) gave a strong impetus to benchmark indices on Friday, which closed in the positive for the sixth consecutive week — their longest winning streak this year. Not surprisingly, information technology (IT) companies led the rally, with TCS soaring 6.6% and Tech Mahindra, Infosys, HCL Technologies and Wipro rising 3-5%. In all, 74% of the Nifty’s gains of the day came from the IT sector.
Both the Nifty and the Sensex ended the day 0.8% higher at 24,502.15 points and 80,519.34 points, respectively. With this, the indices closed the volatile week 0.7% higher. The Sensex hit a fresh lifetime high of 80,893.51 during the day, while the Nifty touched 24,592.20.
Apart from the TCS earnings, positive US inflation number also aided IT stocks. The inflation in consumer price in the world’s largest economy slowed to 3% in June, better than expectations of 3.1%.
While the momentum in equities has been upbeat since the election results on June 4, the latest week saw some volatility as investors resorted to profit booking ahead of the earnings season.
Joseph Thomas, head of research at Emkay Wealth Management, said Friday’s gains do not indicate that the current phase of volatility is already behind. “Profit booking may continue ahead of the Budget, that will provide more clarity on the policy continuity,” Thomas said.
While the IT sector fuelled the rally in benchmark indices, the overall market breadth was negative amid underperformance in the broader market.
The BSE Midcap index fell 0.2% and the BSE Smallcap index ended 0.1% lower on Friday. Even for the week, the broader market indices were marginally negative, underpinning the caution among market participants ahead of earnings.
DP Singh, joint CEO of SBI Mutual Fund, said the volatility is good for the market and that it is dangerous for the market to only move in one direction. Singh added that overall, there is a lot of investor interest in India.
Tata Mutual Fund highlighted that the valuation premium of the Nifty Midcap 100 index against the Nifty increased by approximately 56% in June. However, it said the broad-based economic recovery and revival in investment cycle revival would imply more investment opportunities in mid- and small-caps in the long term.
On the other hand, Nilesh Shah, MD of Kotak Mahindra AMC, recommended that investors take profits in a rising market by cleaning up portfolio in the rally. The fund house was ‘overweight’ on large-caps, ‘marginal underweight’ on mid-caps and ‘underweight’ on small-caps.
