A tenth of stocks hit year highs in just two weeks

At least one in every 10 stocks that figure on the BSE 500 index — a good 61 in all —  has hit a 52-week high since the government stepped on the accelerator for reforms. Twenty-five of these stocks hit their highs just on Wednesday.

The government announced a reduction in fuel subsidies, and allowed for foreign investment in the retail, aviation, power exchanges and broadcast sectors on September 13 and 14, respectively. It subsequently passed a scheme for giving retail investors a tax break for investing in the equity market, and cut taxes for those raising foreign funds.

Media companies such as Zee Entertainment, airline player SpiceJet and Tata’s retail venture, Trent, are among the gainers since then.

On the broader market, of the 3,015 companies listed on the BSE, 285 have hit their yearly highs since September 14.

Sadanand Shetty, vice-president and senior fund manager – equity, Taurus Mutual Fund, feels the  government moves have had a positive impact on certain sectors. “Capital goods and engineering companies have benefited from power sector reforms because they are the biggest customers for them. Media companies have moved up on digitisation while oil and gas companies have moved up on easing of the regulatory uncertainty,” he said.

Meanwhile, the BSE Sensex, whose movements are representative of how the market is doing, has gained 611.01 points, or 3.39%, to close at 18632.17 on Wednesday.

Mehraboon Jamshed Irani, principal and head - priority client group, Nirmal Bang Securities, pointed out that some companies hit their highs before the reforms were announced, ironically on fears of downside elsewhere.

“The top quality names in private banking, IT and cement have been going strong and have hit yearly highs as almost everybody was hiding behind these defensives till about two weeks back. The market sentiment has improved a lot in recent weeks after the government took steps to avert a rating downgrade. This has led to buying in beaten-down stocks in infrastructure and power on hopes of further reforms in these sectors,” he said.

Cement companies continued to hit highs on hopes of a price hike. Ambuja Cements, Ultratech Cement and Shree Cement were among those that hit a high on Wednesday.

Some still see fundamental issues in a number of sectors that have run up.

Sanjeev Prasad, Akhilesh Tilotia and Sunita Baldawa, analysts at Kotak Institutional Equities, urged investors in a note dated September 24 to review their investment thesis on several stocks that have run up over the past two weeks in anticipation of future positive developments.

“For many stocks in the PSU banks, industrial and metals sectors, we do not see any fundamental changes. The expectations around further reforms notwithstanding, there are several real challenges (financial, operating and regulatory) for companies and the economy, which simply cannot be wished away,” they said.

Others argue that liquidity will push markets higher in the days to come.

“In the short term, markets are likely to continue moving up mainly on the back of global liquidity, even as the problems have just been deferred. The European Central Bank measure (to buy unlimited amount of government bonds from troubled euro zone countries) is likely to play a bigger role than Fed’s QE3 towards infusing liquidity into emerging market countries,” said Irani.

Foreign institutional investors have been net buyers by `10,384.7 crore since the government announcements. They have been net buyers by `13,415.7 crore in September and `76,426.2 crore since January.