Fears of 3rd wave of Covid-19 trigger uncertainty

Spooked by US Federal Reserve's hawkish stance, dollar index jumping to a two-month high, modest renewed selling from FIIs and news flow on Adani group; market broke its four-week gaining streak this week to end lower amid muted global cues. The BSE Sensex fell 130.31 points to 52,344.45, and Nifty declined 116 points to 15,683.35 points. The broader markets underperformed benchmark indices, with BSE Midcap and Small-cap indices falling 3 percent and 1.86 percent respectively. Sharp selling was seen in metals, auto, banking, financials, infrastructure, energy and pharma stocks. However, good buying was seen in defensives like IT and FMCG. Short covering in beaten-down stocks curtailed weekly losses.

Sharp fall in new coronavirus cases in the country supported the market. However, fears of third wave of Covid-19 in the next 'six to eight weeks' are resurfacing triggering element of uncertainty. During the week, the Indian rupee depreciated 1.17 percent against the US currency to end at 74.10, largely due to rising oil prices and a stronger US dollar index.

Global markets weakened after the announcement from US Fed official that the first-rate increase can be from late 2022. In the past, especially post-2012, big moves in the US interest rates have seldom translated to changes in Indian equities, with particular cases in point being the 2013 taper tantrum and the recent rise in UST yields. While global liquidity factors (and Fed action) do matter, it is important to keep an eye on factors closer to home, such as RBI action, IGB movements, and household savings.

Overall, the direct linkage between Fed action and Indian equities has been weaker in recent years than in the past. In the week ahead major PSUs like ONGC, Bharat Dynamics, Oil India, Bharat Electronics, NMDC, Mishra Dhatu Nigam, ITI, and SJVN will announce quarterly earnings. Among others, Ashok Leyland, Info Edge India, Sobha, Apollo Hospitals Enterprise, Indraprastha Gas, JSW Energy and Repco Home Finance will also release quarterly numbers.

Heard on the Street: Indian stock market crashes to date were caused due to a variety of reasons like change of ruling parties, actions taken by the government (demonetization), ripple effect of international market crashes and now even pandemics. These crashes may seem like a picture of the riskiness and volatility of the Indian markets, however, they can also be viewed as a testament to the tougher times they have recovered from. It is pertinent to observe that some of the sizeable corrections have been triggered by a few groups or companies that come up with bad news. It may be recalled that as early as in 1982, the bear cartel of Bengal started short selling shares targeted primarily of Reliance. The value of shares decreased significantly. The BSE was shut down for three consecutive days. In 2000, it was the dotcom bubble led by information technology (IT) companies. In 2007, it was started with Reliance Petrochemicals and Reliance Natural Resources in December Huge build-ups in derivatives positions leading to margin calls and that many IPOs had sucked out

liquidity from the primary market into the secondary market have considerably weakened markets in 2008. Sharp swings were seen in the market by developments in the Amtek group in 2015. Similarly, it was the turn of large shadow bankers like DHFL, IL&FS, and Indiabulls Housing in 2018-2019. Market players are wondering that this time it seems it is Adani group. However, many things are not clear as Adani is a very strong group compared to all prior cases.

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

Ahead of the settlement week the derivative segment witnessed heightened intraday volatility. In the options segment, the maximum Call open interest was seen at 16000 strike, followed by 15800 and 16500 strikes, while the maximum Put open interest was seen at 15000 strike, followed by 15500 and 15600 strikes. Call writing was seen at 16000, 16200 and 15700 strikes, with unwinding at 15400 and 15200 strikes. Put writing was seen at 15000, 15200 and 15600 strikes, with unwinding at 16200, 16000 and 15800 strikes. Option data indicated that the Nifty could see a wider trading range of 15,400 to 16,000 levels in coming sessions. Bank Nifty likely to face strong hurdle in zone of 35000-35500. Despite the intraday volatility the Nifty VIX for the week closed at 15.29%. The Implied Volatility (IV) of calls closed at 14.26 % while that for put options closed at 15.32%. PCR OI for the week closed at 1.07. Banking counters continued to remain laggards in the week ended while FMCG and IT counters witnessed good defensive buying. In contrast with FY08 commodity boom when metal companies expanded aggressively; this time deleveraging is the buzzword. Almost 70 per cent of the companies in the metal industry — ferrous and non-ferrous — reported a reduction in their outstanding debt as on March 31, versus a year ago. The total debt — long- and short-term borrowings — of these companies dropped by ₹85,942 crore. With higher earnings and better cash flows, the metal companies focussed on deleveraging. For instance, big steel players such as Tata Steel, SAIL and Jindal Steel reduced 28-31 per cent of their debt as of end-FY20, in FY21.

Use the ongoing correction to accumulate quality metal stocks at lower levels. On the back of reports that National Securities and Depository Ltd (NSDL) has frozen the demat accounts of three Mauritius-based foreign funds which collectively held ₹43,500 crore worth of shares in four Adani group companies over ownership disclosures; the market capitalisation of the six listed entities of Adani Group lost about 17 per cent or ₹1.6 lakh crore since June 11, 2021. Analysts look at the rout in Adani group stocks as a temporary slide with the group having strong business foundation in each of the group companies.

Stock futures looking good are ACC, GMR Infra, HUL, HDFC Life, ICICI General, Info Edge (Naukri), SBI and Zee Entertainment. Stock futures looking weak are LIC Hsg, JSW Steel, Powergrid, RBL Bank, and Petronet.