Investors look to key policy decisions, Q2 results; Fed hike to set the tone for markets

Buoyed by the renewed buying from FIIs, moderately weak crude oil prices, halt in the slide of rupee and positive global cues; the domestic markets rallied more than four percent during the week ended. BSE Sensex climbed more than 2,300 points to 56,072 and NSE Nifty jumped 670 points to 16,719 points. The rally was broad-based and nearly all sectors contributed to this rally with IT, banks, capital goods, and metal being prominent gainers. In the broader market Nifty Mid-cap and Small-cap indices gained 3.7 and 4.6 percent respectively. It is pertinent to note that FIIs renewed their buying interest and have turned net buyers on a weekly basis for the first time after several months with purchases worth more than Rs 4,000 crore in the week ended July 22. FII flows will be closely watched in coming days as US Fed is set to announce its interest rate decision next week.On the back of the fall in dollar index, stabilised oil prices and decline in other commodity prices; Indian rupee remained range bound. With monsoon on track and no major negative surprises on Q2 results front, near term direction of the markets will be dictated mostly by macroeconomic data and news from regulators like RBI and others.

Globally investors will keep a close watch on the outcome of a two-day Federal Open Market Committee (FOMC) meeting during July 26-27. Observers expect a 75 basis point hike in interest rates. The rate action will be aimed at taming inflation, but without hurting the labour market say experts.

All in all the commentary is more important to understand Fed's future course of action. There are growing signs that price pressures are easing and suggest that June and July's distressingly high inflation will probably be the peak. But even if inflation indeed comes down, economists see a slow pace of decline. However, the Central Banks across the globe may want to see clear and convincing evidence that price pressures are subsiding before slowing or suspending interest rate increases. Key Q1 earnings to watch out for in next week include Axis Bank, Tata Steel, Tech Mahindra, Asian Paints, Bajaj Auto, Larsen & Toubro, Bajaj Finance, Maruti Suzuki India, Tata Motors, Bajaj Finserv, Dr Reddy's Laboratories, Cipla, HDFC, NTPC, Sun Pharma, IDFC First Bank, Indian Oil Corporation, Canara Bank, Vedanta, Tata Power, TVS Motor Company, Ashok Leyland, DLF and United Spirits. Among other actively traded counters results of Coromandel International, Dixon Technologies, Poonawalla Fincorp, Indian Energy Exchange, KPIT Technologies, Jubilant FoodWorks, Mahindra & Mahindra Financial Services, SBI Cards and Payment Services, and Multi Commodity Exchange of India are keenly awaited.

Quote of the week: Courage taught me no matter how bad a crisis gets ... any sound investment will eventually pay off — Carlos Slim Helu

Don't despair amid the inevitable setbacks that all investors face, especially during a crisis in the market. If the reasoning behind the investment was sound, stick with it, and it should eventually turn around.

F&O / SECTOR WATCH

Mirroring the bullish undertone in cash market, the derivatives segment witnessed mildly exuberant trading. In the option segment, maximum Call Open Interest was seen at 17,000 strike, followed by 16,800 strike and 16,700 strike. Call writing was seen at 17,200 strike, followed by 17,100 strike and 16,700 strike. Maximum Put Open Interest was seen at 16,500 strike, followed by 16,000 strike and 15,800 strike. Put writing was seen at 16,700 strike, followed by 15,800 strike and 16,500 strike. Put unwinding was seen at 15,500 strike, followed by 15,200 strike and 15,300 strike. Maximum pain point of options for July series is at 16,600 level with crucial support at 16,500 and resistance at 17,000 points. Track rollovers for spotting winners of August series. Implied Volatility (IV) of Calls closed at 15.96 per cent, while that for Put options, it closed at 16.87 per cent. The Nifty VIX for the week closed at 16.86 per cent.

PCR of OI for the week closed at 0.84. Bank Nifty has outperformed overall market in the week gone by and is now likely to test 37250 levels in the upcoming sessions. Crucial support for the Bank Nifty is placed at 36,100 and key resistance is at 36,975.With the Q1 results season in full swing, highly stock-specific activity indicated for present. It is advised that all sharp up moves must be used to book partial profits and also to protect profits at higher levels rather than continuing with a blind chase of the up-move. Profit booking from higher levels may not be ruled out. Start of the coming week would see market first reacting to Q1 numbers of index heavyweights Reliance Industries, Infosys, ICICI Bank, and Kotak Mahindra Bank. After lacklustre performance in the last fortnight, punters expect IT to play some catch-up act as well. Infosys may provide the necessary trigger. Infosys is likely to report a 7-8 per cent growth in profit on a double digit growth in sales. EBIT margin may see a sequential fall on account of wage revisions and rise in travel costs, which analysts said, could be offset by increase in margins of manufacturing vertical and modest depreciation of 1.4 per cent in rupee. Auto stocks are witnessing sustained buying. Use declines to drive into the frontline counters. Stock futures looking good are Colgate Palmolive, BEL, ICICI Bank, Indigo, Jubilant Foodworks, Kotak Bank and Persistent Systems. Stock futures looking weak are Astral, Biocon, Deepak Nitrate, Havells, IndiaMart, Powergrid,Syngene and Zydus Life.

STOCK PICKS

Pioneer Embroideries Ltd

Pioneer Embroideries Ltd is one of India's notable manufacturer and exporter of value-added Specialized Polyester Filament Yarn (SPFY) and Embroidery & Laces (EL). The company's product portfolio consists of SPFY, Embroidered Laces and Fabrics, Braided Laces, etc. The company owns two strong brands, SILKOLITE in the SPFY segment and HAKOBA, a heritage brand, in retail segment for embroidered fabrics, garments, salwar kameez dupatta (SKDs) and sarees. The company's Specialty Polyester Filament Yarn business remained dominant and profitable, with its contribution to overall turnover at 85.8 per cent. The Company has undertaken a capacity expansion project to increase capacity from 18,000 MT to 26,000 MT at capex of Rs58 cr. The present expansion is in the POY (Partially Oriented Yarn) and DTY (Draw Textured Yarn) segments. The production will commence from January 2023. The Embroidery and Laces (EL) business witnessed strong demand recovery in both home and international markets, showing an increase of 73.8 per cent during the year ended. The company has integrated its three facilities and is replacing old machines with modern efficient and high productive machines. The company is aggressively focusing on POY-based specialty textile avenues such as Flame retardant, Automotive, Anti-Microbial, to name a few. With the newer product offerings in place, PEL will become a complete supplier or a one-stop-shop for its customers for all kind of speciality yarns.In August 2021 the company had launched its first Ready-to-Wear (RTW) garments for both women and men in all white collection to commemorate the nation's 75th year of Independence.The company has also promotedShree Ganesh Integrated Textile Park Private Limited (SGITPL), a textile park approved under Government of India (GoI)'s Scheme of Integrated Textile Park (SITP).Company's credit rating has been upgraded in the month of October 2021 & further upgrade in rating to Investment Grade happened in April 2022. This has been a result of a steadilyimproving operational performance and deleveraging efforts undertaken in recent years.Buy between Rs44-48 for medium term target of Rs125.

CG Power and Industrial Solutions Ltd

CG Power and Industrial Solutions Ltd is engaged in the business of power conversion equipment, which includes a wide spectrum for all industrial applications of medium and low voltage rotating machines (motors, generators, alternators), drives and stampings for all industrial applications. The unique and diverse portfolio ranges from transformers, switchgears, circuit breakers, network protection & control gear, project engineering, HT and LT motors, drives, Rail Transportation, Electrification and Signalling System, power automation products and turnkey solutions in all these areas. The company a reputed supplier of equipment's & solutions to the Indian Railways for rolling stock, railway electrification, coach and signalling segments for more than three decades. In November 2020, Tube Investments of India (TII), a Murugappa Group company, acquired controlling stake in CG.Ably administered by the new management, the company achievedseveral new landmarks like highest ever sales by Motor business; highest ever sales by Railway business; andhighest ever Order booking for the Transformer business during the year ended.The company has prepaid a debt of Rs650 crore during the financial year.The sustained improvement in operational and financial performance and the deleveraging makes the company a compelling buy at current levels for target price of Rs500 in medium term.