Lockdowns may hit mkt sentiment

Supported by the RBI's liquidity measures for Covid-hit sectors, hopes of containment of Corona through vaccination, rally in commodities and positive global cues including Biden's decision to waive intellectual property rights on vaccines; markets rallied for the second consecutive week. The Sensex climbed 424.11 points to 49,206.47 and the Nifty was up 192.05 points at 14,823.15. True to expectations, broader market relatively outperformed the benchmark with both the Nifty Midcap and Small cap indices clocking 52 week highs.

Observers expect broader markets to continue ongoing relative outperformance for some more weeks. FIIs have net sold more than Rs 5,000 crore worth of shares in May so far in the cash segment, in addition to Rs 12,039 crore of selling in April. Experts feel the outflow could continue if the situation deteriorates further which ultimately pressurises the economy. DIIs have net bought Rs 2,135 crore of shares so far in May, on top of over Rs 16,500 crore of buying in the previous two months.

On the economic front, April month's Manufacturing and Service PMI data came at 55.5 and 54. The numbers were higher than the market expectations due to a rise in export order in manufacturing and new order in service industry led to expansion in both the business activities. The April GST collection reflected the same outperformance as it soared to record Rs1.41 lakhs crore, showing the economic resilience. However, economy observers expect that the ongoing restrictions in several stateswould affect the Indirect taxes collection negatively which result in lower revenues in the upcoming months.

Due to continued rise in the Covid daily cases which surged above 4 lakh, the lockdown period in many states stretched further. Though there was no major impact of Covid second wave on markets yet, the news of strict lockdown in several states may deteriorate the sentiment ahead. Midweek announcement of the RBI Governor announcing various measures as support to the economy and a liquidity facility of 50,000 crore to the healthcare industry was received positively by the markets.

Key companies like Apollo Tyres, Asian Paints, Escorts, Lupin, UPL, Vedanta, Cipla, Dr Reddy's Laboratories, Tata Power, Larsen & Toubro and Voltas will release quarterly earnings next week. Many recently listed companies like Happiest Minds Technologies, Polycab India, Rossari Biotech and Macrotech Developers will also come out with their numbers. Near trend in the market will be dictated by developments in Covid spread, Q4 earnings and global cues. IIP data for March and Inflation data for April is expected to be released in the coming week. IIP data is expected to show robust growth due to economic recovery witnessed in March while inflation rates are to remain at elevated levels. Coming week is a holiday-shortened one with market closed for Ramzan Id on 13th.

Heard on the Street

When everyone around you seems to be getting rich quick, it's hard to control your fear of missing out. But buying assets just because they're hot is a good way to get burned. Buy low, sell high. Is any investing advice more universal—or more universally ignored? That market axiom was made for times like these, when stocks are hovering near all-time highs, digital currencies are heading to the moon and commodity prices are surging. Yet, when several stocks seem to be breaking records every day, your emotions naturally prompt you to buy high, not to sell.

Even the world's greatest investors find selling harder than buying. Peter Lynch, former manager of the Fidelity Magellan fund, has said his "greatest mistakes" were selling at the wrong time. That's largely because of the unbearable feeling of FOMO, fear of missing out. Sell a winner too soon, and you have to watch from the sidelines as it continues to soar. The most you could have lost from keeping it is 100 per cent, but the gains you can miss out on by selling too soon are unlimited. It hurts not to buy an asset that goes on to become a huge winner. But it stings far worse to sell one. That's an active decision, easier to imagine undoing.

That focuses your attention on the mistake, making you feel you should have made a different decision and filling you with regret. Never are those feelings more intense than when markets are setting records and everyone around you seems to be getting rich quick. And the less certain you feel about what an asset is worth, the more hesitant you will be about selling. Imagine that a company was cheap at price A and overvalued at price C.

Then you would know what to do: Buy at price A and sell at price C. If only it were that simple. The hard part of investing, is that most stocks, most of the time, hang around "price B," anywhere between cheap and overvalued. In that ambiguous range of price B, "it becomes tough to tell" whether or not to sell. The range of price B varies inversely with how much you know about the company or its industry.

If you know a lot, price B is a narrow zone; if you know only a little, then it is wide and fuzzy. The higher the market goes, the more you will see and hear about stocks that are far more expensive. Even if yours is already overpriced, thinking about others can make it seem moderate by comparison - pushing it back into that grey area of price B. The question you should always ask yourself isn't "What should I buy?" but rather, "What should I buy or sell?" Better yet, instead of asking how you can improve your portfolio, ask how you can streamline it.

Yes, missing out on future gains could be painful. Missing out on future losses won't be. In the long run, adding or keeping hot assets only because they are hot, not because you think they are undervalued, is the surest way to get burned.

Too many investors become obsessed with being right, even when the gains are small. Winning big and cutting your losses when you're wrong are more important than being right.

Quote of the week

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." - George Soros

FUTURES & OPTIONS / SECTOR WATCH

Stock specific action spurred brisk volumes in the derivative segment. Despite negative news flow of Corona, Nifty bounced back from lower levels and moved towards 15000 level during the week ended. On the option front, the maximum Put open interest was seen at 14,500 followed by 14,600 and 14,800 strikes while maximum Call open interest was seen at 15,200 followed by 15,000 and 15,100 strikes. Call writing was seen at 15,200, 14,800 and 15,400 strikes with Call unwinding at 14,700 and 14,600 strikes, while Put writing was seen at 14,800 then 14,500 strikes.

Analysts fear that if commodities continue to trade higher, inflation concerns may strengthen further fuelling debate about how long central banks can continue with loose monetary policies. Stay invested for present in frontline metal counters like Tata Steel, JSW Steel, Vedanta and Hindalco. However, investors are cautioned that it will be a roller coaster ride from these higher levels. Impact of partial lockdowns and sluggish sales have begun showing impact on automobile companies. Book profits on bulges. Look out for stock specific opportunities in Pharma and FMCG.

Stock futures looking good are Adani Ports, Aarti Inds, IOC, NMDC, PNB, SBI Life, Tata Steel and Zee Entertainment. Stock futures looking weak are Bajaj Auto, Cipla, SRF, Tata Consumer and Powergrid.

STOCK PICKS

Gufic Biosciences Limited is engaged in the manufacture of pharmaceuticals, medicinal chemicals and botanical products.The company has been known and respected for innovative and high quality pharmaceutical and herbal products along with a wide range of Active Pharmaceutical Ingredients (APIs).

It is one of the largest manufacturers of Lyophilized injections in India and have a fully automated lyophilization plant. Its lyophilized product includes Antibiotic, Antifungal, Cardiac, Infertility, Antiviral and proton-pump inhibitor segments. The company is now augmenting its global focus by deepening its presence in the priority markets of India, Germany, Switzerland, South Africa, Russia, Europe and key countries within the emerging market territories.

It aims at providing lifesaving drugs to people at affordable prices with no compromise in its quality. It offers a varied therapeutic basket in its Bulk drugs/API division. The categories of API's manufactured are anti-fungals, anti-bacterials, anesthetics and intermediates for anti-fungals.

The company's segments include Pharma, including Formulations and Bulk Drugs, and Consumer. It has pharmaceutical products under categories, such as Criti Care, including Doxific, Micafung, Rabol and Tigefic-Plus; Criticare Life, including Ticofic-200 and Gufivan-500; Ferticare, including Puregraf 75IU 3D, Cetrocare 0.25mg 3D and Follicare 150IU 3D; Spark, including Aznee Duo, Eclin, Flabone, Vipro Fe, Vipro M and Zad G, and Herbal, including Bocomo-Forte, River-Suspension, Sallaki-Liniment, Sallaki-Plus, Sallaki-XT and Smashit.

Why we are recommending

1. Lyophilisation as a concept will continue to grow globally as the process has benefits to improve quality and shelf life of injectable drugs.

2. Scope for increase in specific Anti-Viral drugs like Famcyclovir, Remdesivir and Thymosin Alpha for Covid-19 patients. Scope for defined protocol drugs such as Azithromycin, Doxycycline, Hydroxychloroquin, Tocilizumab etc.

3. The company has identified several peptides which has great market potential in segments like Immunity (Thymosin Alpha),Cosmetic dermatology (Botulinum toxin) Pain management(Botulinum Toxin) ,Fertility (Recombinant products) and several others products in the critical care segment. Several of these products would be first time launches and would be taken through proper clinicals trials to get a market authorization in India and other countries identified.

Buy between Rs140-150 for momentum medium term target of Rs225. Keep stop loss at Rs125. Risk / Reward ratio is 1:4.

Indian Sucrose Limited engages in the manufacturing and refining of sugar. The Company has two segments: manufacturing of white crystal sugar and cogeneration of power. The company's main products are sugar, molasses and bagasse. The company's plant is located in Hoshiarpur district of Punjab

Why we are recommending

1. High Ethanol capacity. Company moving aggressively into sanitizer segment.

2. Present Market Capitalisation is less than 10 per cent of total sales.

3. Benefitting from higher sugar prices and changes in government policies.

Buy around Rs29 for medium term target of Rs43. In the event of strong correction in market keep stop loss at Rs26. Risk / Reward ratio is 1:5.

(The author is a stock market expert. He is former vice chairman of AP Planning Board)