Portfolio churn begins; Investors dump IT, pharma stocks for banking, capital goods

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Portfolio churn begins; Investors dump IT, pharma stocks for banking, cap goods
It's extremely rare to see stocks like Dr Reddy's and Tata Consultancy Services fall by more than 2 per cent, when the markets are up, unless there is some bad news in the individual stocks.

That's exactly what is happening in the last few trading sessions as investors are beginning to churn their portfolio and dump IT and pharma stocks for infra, banking, metal and capital goods stocks.

TCS has seen a systematic decline in price from a Jan high of Rs 2382 to the current levels of Rs 2098. Infosys has decline from levels of Rs 3815 in early March to the current levels of Rs 3244.

It's similar with pharma stocks which have seen a decline in the last couple of weeks including names like Dr Reddy's Labs, Sun Pharma and Cipla.

Now, take a look at some select names in the banking and infra space. On Wednesday ICICI Bank hit a 52-week high of Rs 1268, up from Rs 968 seen in early Feb.

HDFC Bank on the other hand is up from levels of Rs 640 in early Feb to the current levels of Rs 746. Infra stocks like L&T, Bhel and Siemens have also been rallying to new highs.

Now, the reason for the churn in portfolio is simple. IT stocks are facing a double whammy. The rupee has appreciated dramatically, which is likely to affect the revenue and profitability of IT companies. On the other hand Infosys and TCS have sounded a warning that revenues for this Quarter would be subdued and there were challenges going ahead. The export oriented pharma sector is also likely to be hit on account of gains in the rupee against the dollar.

Now, investors are shifting their attention to banking and infra on the hopes that a Narendra Modi led NDA government would provide boost to the economy and hence to these sectors. Also, analysts feel that the economy may have bottomed out and the worst seems over. Hence, a shift to banking, infra, capital good and metal stocks.

How far the rally will last is difficult to tell. Should the election outcome not match expectations, there could be a capitulation in these stocks.


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