Budget expectations to drive stock- & sector-specific movements

Global Cues

l Sharp rise in 10-yr yield from 3.9% to 4.15%

l It triggered capital outflows from EMs like India, Taiwan, South Korea and Hong Kong

l Optimism about health of chip industry lifted tech shares

l S&P-500 & Dow Jones finished at record highs

Spooked by weak Q3 numbers from index heavyweight HDFC Bank, renewed selling from FIIs, concerns over geo-political situation involving shipping across Red Sea and statement from RBI Governor over interest rate cut; the domestic markets witnessed a sharp fall in the week gone by with Nifty and Sensex falling close to 1.5 percent each. NSE Nifty and BSE Sensex fell 1.5 percent to end at 21,572 and 71,424 respectively. Outperformance was seen in broader markets, with the Nifty Midcap-100 gaining 1.16 percent. Nifty Smallcap-100 was flat with modest fall of 0.17 per cent. Despite weakness in several large-caps, the mid-cap and small-cap segments demonstrated resilience, outperforming largely due to robust domestic liquidity. Notably, PSU stocks, especially in the railway sector, sustained a bullish trend. FIIs turned massive sellers in the cash market having sold equity worth Rs24,147 crore in three days during January 17-19. However, DIIs invested about Rs10,274 crore in Indian equities so far this month. Sharp rise in the 10-year yield from the recent level of 3.9 percent to 4.15 percent triggered capital outflows from emerging markets like India, Taiwan, South Korea and Hong Kong.

Some observers attribute to expensive valuations in Indian market. Expectations surrounding the upcoming Union Budget may also drive stock- and sector-specific movements in near term. It is pertinent to observe that in the US Stock market both the S&P-500 and the Dow Jones Industrial Average finished over last weekend at a record high. Stocks have climbed steadily since late last year, a broad rally powered by investors’ expectation that the Fed may soon begin cutting interest rates after a long campaign of increases. This week, optimism about the health of the chip industry has lifted tech shares.

Coming week would see Axis Bank, Cyient, JSW Energy, Bajaj Auto, Canara Bank, DLF, Indian Oil Corporation, Laurus Labs, Railtel Corporation, Tata Steel, Tech Mahindra, TVS Motor Company, ACC, Adani Power, IEX, IGL, Punjab National Bank and SBI Life among others will announce their December quarter earnings. Next week is a truncated one following a holiday on Monday on account of the Ram Mandir inauguration in Ayodhya, while Friday is Republic Day.

Quote of the week: In investing, what is comfortable is rarely profitable

— Robert Arnott

At times, you will have to step out of your comfort zone to realize significant gains. Know the boundaries of your comfort zone and practice stepping out of it in small doses. As much as you need to know the market, you need to know yourself too. Can you handle staying in when everyone else is jumping ship? Or getting out during the biggest rally of the century? There’s no room for pride in this kind of self-analysis. The best investment strategy can turn into the worst if you don’t have the stomach to see it through.

F&O / SECTOR WATCH

On the back of volatility triggered by Q3 results of HDFC Bank, the derivatives segment witnessed sharp and wild stock-specific moves. Ahead of the settlement and truncated week of trading, sharp spike in volumes was seen in several stock futures. On the weekly options front, the maximum Call Open Interest was seen at 22,500 strike, followed by 22,000 and 21,700 strikes. On the Put side, the maximum Open Interest was seen at 20,500 strike, followed by 21,000 and 21,500 strikes. Immediate resistance and support for the Nifty is at 21,700 and 21,500 respectively. Bank Nifty futures can find support at 45,000. Potential supports below 45,000 are at 44,500 and 44,000 points.

The nearest support levels are at 46,000 and 45,500. On the other hand, the immediate barriers are at 46,500 and 47,000.The Put Call Ratio (PCR) of January expiryoptions stand at 0.7.A ratio less than one shows that participants have sold more call options when compared with put options. Like seen in the last year, this year too the market players expect big bang public capex announcement. The excitement is visible in railway and power stocks that rallied to new highs amid heavy trading volumes in the week gone by. However, it should be remembered that being Election year, the Union Budget will only be a Vote-on Account Budget. Stress on fiscal consolidation and prudence could disappoint the market, leading to corrections in stocks exposed to government capex programs. Stock futures looking good are Adani Ports, BEL, Canara Bank, PNB, Coal India, NTPC and Ultratech. Stock futures looking weak are Alkem,HUL, Godrej Consumer, HDFC AMC, IPCA and Voltas.

(The author is a senior maket analyst and former vice- chairman, Andhra Pradesh State Planning Board)

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