Auto Stocks Outlook for the week – 27.06.2016 to 01.07.2016, To track broader market; Brexit pressures loom

Auto Stocks Outlook for the week – 27.06.2016 to 01.07.2016, To track broader market; Brexit pressures loom

 ( www.rupeedesk.in )

Stocks of major automobile companies are seen moving in line with the broader market, with a

negative bias, based on expectations of continued selling pressure due to foreign institutional

investors pulling out funds. The markets will keep an eye on the fallout of the UK's exit from the

European Union, even as more countries begin demands for such referendums, adding that the CNX

Auto Index may find it tough to remain above the 8500-point mark for much longer. The index,

which closed down 0.1% yesterday on a weekly basis, shed almost 3% in yesterday's trade, erasing

the week's gains.

What's more, the markets would also see added volatility on account of the expiry of the June series

expiry on Thursday. Yesterday, Tata Motors led losses across auto majors, falling nearly 8% in

intraday trade after the UK voted in favour of a 'Brexit'. The company's shares may continue to see

selling pressure on weakness in European markets, traditionally a stronghold for its subsidiary Jaguar

Land Rover.

Maruti Suzuki is facing its own battles, as with the strengthening of the US dollar, raw material

exports will become more expensive. The company's stock, which fell nearly 1% on a weekly basis.

Bajaj Auto, Hero MotoCorp, and Mahindra and Mahindra shares, which defied the larger trend this

week, closing marginally higher, may continue to take their cues from the advance of the southwest

monsoon, which made rapid strides this week. All three companies are heavily dependant on the

monsoon, as a major portion of their sales come from rural India, which has been in the grip of a

slowdown following two consecutive years of drought. Auto companies' stocks would also track sales numbers for June, data for which is to be announced on Friday.

IT Stocks Outlook for the week – 27.06.2016 to 01.07.2016, In range, seen taking cues from broad market

IT Stocks Outlook for the week – 27.06.2016 to 01.07.2016, In range, seen taking cues from broad market

 ( www.rupeedesk.in )

Stocks of information technology companies are seen trading in a range next week, and are likely to

take cues from the broad market. The UK's decision to exit the European Union left the domestic as

well as global markets in the red. This is seen having a negative impact on shares of IT companies

which have 50-60% of revenue coming from their US operations and around 25% from European

operations.

However, analysts are hopeful that markets will recoup losses next week. In either scenario, a major

fall in IT stocks is not expected, even as investors are expected to be cautious next week. With the

UK exiting the European bloc, domestic IT companies are expected to have a plethora of challenges

ranging from immigration laws, uncertain client budgets, evolving economic conditions, and need for

a strategy for unfathomable market conditions in the near term, even as 'Brexit' may hold some

opportunities in the long term.

Yesterday, the pound sterling and the rupee declined around 7% and 1%, respectively, against the

US dollar. The Indian currency closed at 67.9600 against the greenback yesterday. In a relief to the

sector, the rupee is expected to weaken further against the dollar as risk-averse sentiment is seen

continuing next week. Analysts see Tech Mahindra's shares as a good buy for market participants

Looking to make short-term investments. Traders are expected to prefer stocks of sector leaders Tata

Consultancy Services and Infosys who have proven to be safe bets in the past.

Pharma Stocks Outlook for the week – 27.06.2016 to 01.07.2016, Seen weak next week as Europe exposure to weigh

Pharma Stocks Outlook for the week – 27.06.2016 to 01.07.2016, Seen weak next week as Europe exposure to weigh

 ( www.rupeedesk.in )

Stocks of pharmaceutical companies are likely to trade with a negative bias next week as investors

tackle the uncertainty caused by UK's decision to exit the European Union and its impact on some

firms which have considerable exposure to the region. Volatility is also expected as traders roll over

positions to July derivatives contracts ahead of the expiry of June series on Thursday. Volatility in the

euro and pound sterling following UK's decision to leave the Union is seen causing considerable

impact on some pharmaceutical companies' going forward.

Total sales in the EU, including UK, account for 22% of sales of Aurobindo Pharma, about 27% of

sales of Ipca Laboratories, 13% of sales of Torrent Pharmaceuticals, 9% of sales of Glenmark

Pharmaceuticals and 5% of sales of Dr Reddy's Laboratories. Wockhardt has a manufacturing facility

in the UK, and the country contributes a third of its revenue. While we expect the broader market to

recover next week, with some volatility induced by foreign investors selling on rise, the risk-averse

approach following the UK referendum is seen weighing on pharmaceutical stocks, which is still seen

reeling under regulatory issues concerning some companies.

Banks and automobile we are positive about, but we are still uncertain about pharmaceutical stocks

as many have regulatory issues. Many pharmaceutical companies are troubled by global regulators,

particularly the US Food and Drug Administration, over violation of quality norms at their

manufacturing plants. This has hurt earnings of all these companies, which is weighing on investor

sentiment.

Most large-cap pharmaceutical stocks are likely to trade with a negative bias or are seen range

bound. The only stock the analyst is positive about in the sector is the mid-cap Divi's Laboratories.

The analyst expects the scrip to gain 5-6% from yesterday's closing price of 1,100 rupees. This week,

the stock declined 1.2%. Over the medium term, the stock is expected to remain weak. Glenmark

Pharmaceuticals is also expected to remain weak in the medium-to-long term.

FMCG Stocks Outlook for the week – 27.06.2016 to 01.07.2016, Improved monsoon rains to lift sentiment

FMCG Stocks Outlook for the week – 27.06.2016 to 01.07.2016, Improved monsoon rains to lift sentiment

( www.rupeedesk.in )

Shares of fast moving consumer goods companies are seen trading on a positive note next week, as

the broader market is likely to rebound after the sharp fall witnessed today on UK's decision to exit

the European Union. Pick up in monsoon rains in last few days is also likely to lift sentiment in FMCG.

The impact of 'Brexit' on Indian FMCG companies is seen limited. The progress of monsoon is the key factor that will determine the trend in FMCG stocks. After a sputtering start, the southwest monsoon seems to have finally picked up. In the week ended Jun 22, India received 39.5 mm rainfall, 7% below normal. Rains were 29% below normal in the week earlier.

Hopes are pinned on good monsoon this year for revival in demand and keeping inflation under

check. Progress of rains has a bearing on FMCG sector, as rural demand for consumer goods is

dependent on performance of monsoon. This week's exit was with "Brexit' and next week will be

driven by volatility due to expiry of June derivatives contracts on Thursday.

Telecom Stocks Outlook for the week – 27.06.2016 to 01.07.2016, Seen mixed; sector guarded from Brexit hit

Telecom Stocks Outlook for the week – 27.06.2016 to 01.07.2016, Seen mixed; sector guarded from Brexit hit

( www.rupeedesk.in )

Stocks of telecommunication services companies are seen trading mixed next week as the sector is

considerably shielded from the volatility in European markets that will weigh on Indian stock indices.

In a historical event that is likely to have prolonged repercussions on financial markets across the

world, UK yesterday voted to exit the European Union. Based on opinion polls by a number of

international media outlets ahead of the referendum, the market had factored in a "Bremain," or UK

continuing the 43-year membership.

Results of the referendum, which showed 52% votes from 382 polling constituencies in favour of

UK's exit or 'Brexit', sent shockwaves around the world. Mirroring decline in global indices, NIFTY 50 ended down 2.20% at 8088.60 points, while S&P BSE Sensex ended 2.24% lower at 26397.71 points from their previous week's close. All telecom stocks also ended in the red on Friday's close. Telecom stocks are likely to remain range bound.

The anxiety is over the fact that businesses in Europe will halt their investment in information

technology and telecom services until there is more clarity on UK's trade policies. However, Indian

telecom majors have little or no revenue coming in from Europe. The stock may see some movement

as the company announced late Friday that the scheduled merger of its arm Airtel Bangladesh with a

subsidiary of Malaysia's Axiata Group Bhd has been postponed to late September from June earlier.

Idea Cellular Ltd is seen weak on the charts and is likely to continue its downward trend. The analyst

expected Reliance Communications Ltd and Tata Communications Ltd to rise over the next week.

Telecom stocks, however, may see some volatility as traders roll over positions to the July derivatives

contracts ahead of the expiry of June series on Thursday.

Capital Goods Stocks Outlook for the week – 27.06.2016 to 01.07.2016, Seen in range with negative bias

Capital Goods Stocks Outlook for the week – 27.06.2016 to 01.07.2016, Seen in range with negative bias

 ( www.rupeedesk.in )

Stocks of capital goods companies are expected to trade in a range with a negative bias next week,

tracking the broad market for further cues in the aftermath of the Brexit that sent markets worldwide

in a tailspin yesterday. Indian financial markets reacted sharply to the surprise result of the UK

referendum, with the BSE Sensex falling over 1000 points, or 4%, and rupee declining to 68.21 a

dollar, the lowest level in four months.

Nifty 50 ended down 181.85 points or 2.2% at 8088.60, after touching an intraday low of 7927.05

points. Stocks of major capital goods companies were down after the UK voted in favour of leaving

the European Union, as traders pulled funds out of equities, owing to uncertainty across the wider

market. While capital goods and engineering sectors are largely a domestic story, the tone for the

broad market will be dictated by foreign institutional flows. If investment sentiment remains subdued

across the wider market, stocks in this sector will feel the headwinds as well. Avantha Group-owned

Crompton Greaves, too, fell 1.5% following the referendum, while stocks of state-owned Bharat

Heavy Electricals and Siemens were down 3.3% and 2.2%, respectively. Stock of Siemens is seen

trading with a weak bias.

Bank Stocks Outlook for the week – 27.06.2016 to 01.07.2016, Bias positive next week on recovery post Brexit

Bank Stocks Outlook for the week – 27.06.2016 to 01.07.2016, Bias positive next week on recovery post Brexit

 ( www.rupeedesk.in )

Bank stocks are likely to recoup losses and trade with a positive bias next week, tracking the trends

in the broad market as investors shift their focus on domestic triggers from 'Brexit.' However,

investors will be cautious ahead of the expected volatility due to expiry of June derivative series on

Thursday. Investors will have to focus on domestic factors such as progress of monsoon and will also

await developments related to appointment of the Reserve Bank of India governor. Current RBI

Governor Raghuram Rajan had announced that he will return to academia when his term ends in

September. Market has been speculating who will succeed Rajan, termed as an inflation-hawk by

market participants, to gauge further trends on interest rates.

Private sector banks such as IndusInd Bank and YES Bank may see sustained buying driven by higher volume, while ICICI Bank may see some recovery. Trends in the currency as well as bond market will be closely tracked as they have implications on the non-interest income of the banks. Yesterday, rupee ended at its lowest closing level since Feb 29 as the UK referendum yesterday favoured the country leaving the European Union. The rupee closed at 67.9600 per dollar as against 67.2500 on Thursday. Volatility in the rupee's exchange rate could adversely impact borrowers who have unhedged foreign currency exposure. This in turn may also impact banks as the central bank

mandates lenders to make provisioning against such clients.

Cement Stocks Outlook for the week – 27.06.2016 to 01.07.2016, To take cues from broader markets post Brexit

Cement Stocks Outlook for the week – 27.06.2016 to 01.07.2016, To take cues from broader markets post Brexit

( www.rupeedesk.in )

Cement stocks are likely to take cues from the broader market, which in turn is seen volatile next

week as foreign institutional investors are expected to continue selling due to uncertainty following

the 'Brexit'. UK voting to leave the European Union has sent shockwaves across markets worldwide.

What could also add to the volatility is the fact that next week traders will roll over positions to the

July derivatives contracts ahead of the expiry of the June series on Thursday. The cement sector's

fundamentals are seen rather stable with demand recovering, albeit at a slow pace, in some parts of

the country.

Pricing growth is also seen in east and south India. Cement prices in Andhra Pradesh and Telangana

recovered by around 60 rupees per 50-kg bag in May-Jun, after a sharp decline in March. Price hikes

by companies in northern and central India in March sustained through Apr-Jun and will support

earnings of companies based in northern India, while aiding pan-India companies. Positive on the

medium-term outlook of stocks of companies such as UltraTech Cement and JK Lakshmi Cement.

Stocks of these companies are preferred bets due to their better distribution and brand strength in

key geographies. UltraTech's capacity expansion will hold the company in good stead to meet any

sudden spurt in cement demand.

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