Market breaches 18,000 mark

The Indian stock markets extended their gains during the week, amidst sessions marked by volatility, with the Sensex and Nifty ending higher by 1% each. BSE mid-cap and small-cap indices after many weeks underperformed their large-cap counterparts, with BSE mid-cap ending higher by 0.5% and BSE small-cap ending almost flat. The market traded in a narrow range during the week but finally managed to close above the psychological mark of 18,000 on the BSE index, thereby boosting investor sentiment. Factors such as the ongoing earnings season, positive sentiments from Chinese markets and mixed cues from European and US markets weighed on investors' sentiment during the week. On the sectoral front, most of the indices ended in green, with the BSE metals and BSE capital goods indices gaining the maximum of 4.1% and 2.1%, respectively.

BSE Metals
The BSE metal index gained 4.1% over the previous week, outperforming the Sensex by 3.1%. While Tata Steel, SAIL and Jindal Steel were up by 5.3%, 4.2% and 2.5%, respectively, as steel prices are expected to firm up in the coming months, JSW Steel was up 8.8% on media reports that the announcement of stake sale to JFE may conclude next week. Sesa Goa also witnessed an appreciation of 6.3% during the week as it reported strong quarterly numbers, but NMDC was down 1.8% due to the ongoing Naxal issue in the Dantewada region. On the non-ferrous front, Hindalco led the appreciation by 5.3% followed by Sterlite Ind, Hindustan Zinc and Nalco gaining 4.7%, 1.8% and 0.1%, respectively, as metal prices at the LME rebounded. Our top picks in the sector are Tata Steel, JSW Steel, Hindalco, Sterlite and Hindustan Zinc.

RBI Policy Preview: In the coming Monetary Policy, the RBI’s priority would be to focus on controlling inflation using monetary policy tools. We expect the RBI to hike repo and reverse repo rates by 25bp each to 5.75% and 4.25%, respectively. However, considering the current liquidity situation, we do not expect a CRR hike in the coming policy.

Bajaj Auto - 1QFY2011 Result Update: Bajaj Auto (BAL) posted strong set of numbers for 1QFY2011. The company's top line was in line with our expectations, while bottom line was above our estimates because of higher other income. High growth was also aided by higher operating leverage and robust volume growth in the domestic as well as export markets. Capacity constraints, however, restricted volume growth to a certain extent. We recommend Accumulate on BAL with a Target Price of Rs2,762.

HDFC Bank -1QFY2011 Result Update: HDFC Bank reported net profit growth of 33.9% yoy and a decline of 3% sequentially to Rs812cr, close to our estimate of Rs806cr. A strong pick-up in advances and improvement in asset quality were the key highlights of the result. We recommend Buy on the stock.