Global, domestic cues to drive mkts this week

Amidst heightened volatility in the backdrop of US Fed and the ECB resorting to rate hikes, better progress of monsoon, moderation in FII buying and mixed Q1 results from major corporates; the domestic stock markets took a breather after rallying for four weeks and touching record highs.

BSE Sensex lost 0.78 per cent or 524.06 points to end at 66,160.20 points, and NSE Nifty shed 0.50 per cent or 99 points to close at 19,646 points. However, broader markets continued to attract interest of both investors and speculators. The BSE Mid-cap Index gained two per cent and the BSE Small-cap index added one per cent during the week. FIIs sold equities worth Rs3,074.71 crore, while DIIs bought equities worth Rs5,233.79 crore.

Till date in August, FII bought equities worth Rs14,623.18 crore and DII sold equities worth Rs3,672.40 crore. Against renewed firm trend in global crude oil prices in this week, the rupee closed at 82.25 against the US dollar. The sharp increase in oil prices also attracted investor attention last week, since India is a net oil importer and any rise in crude prices always forces us to spend more money to buy the same, which ultimately increases the fiscal pressure, and raises inflation and growth concerns.

The Government will release GST collections for July on August 1. The manufacturing PMI data will be released by S&P for major countries, including India and the Services PMI data will also be released in the week ahead. The week ahead will witness a slew of companies releasing quarterly earnings. Maruti Suzuki, Power Grid Corporation of India, Adani Transmission, Adani Green Energy, Titan, Bharti Airtel, Adani Enterprises, Sun Pharma, InterGlobe Aviation, Ambuja Cements, Gail (India), Bosch, UPL, HPCL, Dabur India, Eicher Motors, Zomato, SBI, M&M, Britannia and BHEL. Positive global sentiment also prevailed due to the reduced prospects of a US recession. Earnings reports have been the biggest driver of the market over the past few days along with global cues which have oscillated strongly in the past week. Going forward, market will continue to take direction from both global as well as domestic factors.

Listening Post: Playing the market has a whole new meaning

Swarms of wilfully ignorant investors are day-trading their way in the ongoing bull market that started after the Covid pandemic. The coronavirus pandemic has unleashed a new generation of gamblers on the stock market. During some weeks, stock market also resembles a casino—even more than it normally does. Many stocks, especially of smaller companies in financial distress, have been bouncing around like dice on a craps table. These moves seem partly driven by people who are flocking to the stock market for the thrill of taking big risks, whether they pay off or not. Such gambling can be fun, but you should never confuse it with investing. The sharp rally in mid and small caps seem to be bordering on euphoria as consumption demand remains sluggish and valuations have reached unrealistic levels in most cases. Growth in the Indian economy is seen slowing to 6.5 per cent in the current financial year compared to 7.2 per cent last year. In the Jan-March quarter - the latest data available - private consumption grew just 2.8 per cent even as government spending boosted the broader economy. Weaker demand could weigh on company earnings. Warnings of erratic monsoons, which can impact India’s largely agriculture-based economy are a bother. Nothing is cheap right now, so investors have to be very, very selective on midcaps and small-caps.

Wild swings in several stocks are probably powered by individuals trading for short-term kicks and by computer algorithms that pick up on such trades and pile in to ride the momentum. In the old days, the little guy mimicked the big boys; right now, it may be the other way around. The coronavirus unleashed a new generation of gamblers on the stock market: people, mainly young men, going stir-crazy from quarantine and the lack of professional sports to bet on. They’ve turned to trading stocks. To these thrill-seekers, the magnitude of moves matters as much as the direction; a big loss can be as much fun as a big gain. Many ‘new’ entrants don’t know what they’re doing” and “and they don’t care that they don’t know what they’re doing.”To them, there’s no sense in looking at a company’s balance sheet or figuring out how to do a discounted cash-flow analysis. They just regard the volatility as an opportunity for fun. What all these new market gamblers seem to have in common is utter contempt for the system—almost any system. Yet, however crazy the stock market may seem, it isn’t really a casino. Play most games in most casinos long enough and you’re sure to lose. The stock market, on the other hand, tends to reward those best who hold on the longest.

Speculating has some entertainment value. You might learn something useful. There’s even a remote chance you’ll make money. But always know you’re speculating. Also know that you can lose your shirt. Wise gamblers lock their wallets in the hotel-room safe and bring only as much cash to the casino floor as they’re willing to lose. So pick a tiny sum you’re willing to risk—say 1 per cent or 2 per cent of your portfolio. Speculate, if you must, only with that much. Use a different brokerage firm from your regular accounts, to keep any gambling itch from infecting your long-term thinking. Above all, if you get a yearning to join the crowd, think about whether it’s a crowd you want to be part of.

Quote of the week: “Know what you own, and know why you own it

— Peter Lynch

Do your homework before making a decision. Once you’ve made a decision, make sure to re-evaluate your portfolio on a timely basis. A wise holding today may not be a wise holding in the future.

F&O / SECTOR WATCH

After a bout of profit during the last week of last settlement, the August series began with a lacklustre to negative start in the market. Rollovers in Nifty futures improved at 84 per cent (last month 76%), well above the last 3-month average of 71 per cent. This month’s rollover is the highest observed in the last three months. It is pertinent to observe that the Nifty closed with series gain of 3.5 per cent and in last 4 months 15 per cent. On the flip side, the rollover in Bank Nifty remains unchanged, suggesting a consistent momentum compared to the previous month. For Nifty, the highest call open interest concentration is at 19,800 points, while for put options, it stands at 19,600 strike. As for Bank Nifty, the call and put open interest concentration is at 45,500 points. The Implied Volatility (IV) of Calls closed at 10.59 per cent, while for Put options, it closed at 11.29 per cent. The Nifty VIX for the week concluded at 10.51 per cent. Additionally, the PCR OI for the week ended at 1.36. As Index futures positions have declined clearly stock specific approach is the ‘order’ of the day. It is anticipated that Nifty will likely trade in a range of 19,800 to 19,350, and any breakout beyond these levels may trigger further trends in the market. Sectors that can outperform Index in the August series are Auto, Capital Goods, FMCG, Realty and Pharma. The automobile sales for July will be released by automobile companies on August 1. Industry observers expect the sales momentum to sustain, but the outlook for the coming months will be closely tracked by investors. Use declines to accumulate Tata Motors, Ashok Leyland and Bajaj Auto. Barring Wipro and HCL Tech, other technology majors continued to witness selling from FIIs. Buy on declines both Wipro and HCL Tech for surprising gains in medium term.

Stock futures looking good are DLF, Dabur, Federal Bank, LIC Hsg, Granules and National Aluminum. Stock futures looking weak are GNFC, Ramco Cements and UPL.

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