Markets climb despite volatility, but rally remains narrow and fragile

Amidst heightened volatility led by delay in US-India trade deal, uncertainty about Fed rate cut after better US non-farm payroll data, falling rupee and soft manufacturing PMI data; the domestic stock markets extended gains for the second consecutive week.

For the week, BSE Sensex index added 669.14 points or 0.79 percent to close at 85,231.92 and the Nifty rose 158.1 points or 0.61 percent to finish at 26,068.15.On the back of flight of funds to the primary market, the broader market continued to be weak with no follow up buying.

The BSE Mid-cap index shed 1 percent and the BSE Small-cap index declined 2 percent. On the sectoral front, Nifty IT index surged 1.6 per cent, Nifty Auto index added one per cent and Nifty Bank index rose 0.6 per cent. On the other hand, Nifty Realty index fell 3.7 per cent, Nifty Metal index fell 3.3 per cent, Nifty Media shed 2.4 per cent.

The FIIs selling moderated in this week with equity sales worth only Rs188 crore, while DIIs continued their buying with equity purchases worth Rs12,969.03 crore.

The Indian rupee extended the losing streak in the second week, hitting fresh record low of 89.48. During the week, the Indian rupee traded in the range of 89.48-88.42. Expect the rupee to test the 90 level against the dollar in the near term.

Foreign investor sentiment has clearly improved from the risk-off sentiment, but flows remain tentative and tactical rather than indicating an overall structural shift. FIIs are looking for both earnings clarity and valuation reset though India remains strong from a macro point of view.

The Centre’s overhaul of labour laws, through the implementation of four consolidated labour codes, has introduced key changes for workers in micro, small and medium enterprises (MSMEs), including guaranteed minimum wages, better workplace facilities and expanded social security coverage.

Indian markets are expected to take cues from US equities, which ended with strong gains over weekend. Nifty will be driven primarily by global cues this week as no major domestic macro announcements are scheduled. This leaves the Indian equity market more sensitive to international developments, currency movements, and FII activity in near term.

Market Musings: Indian markets may be scaling fresh peaks, but the rally’s foundation is far narrower and fragile than the indices numbers suggest. While the Nifty has surged 1,500 points since early October, the rally rests on the shoulders of just a few heavyweight stocks, leaving the broader market noticeably subdued. The headline numbers mask the real story.

Unlike previous bull runs, this surge is anything but broad-based. Mid- and Small-Cap counters remain under strain, with the BSE Midcap index still about 5 percent below its record high and the BSE Smallcap lagging even further, nearly 9 percent short of its all-time peak. Just six heavyweights, Reliance Industries, HDFC Bank, Bharti Airtel, SBI, L&T and Axis Bank, have powered nearly 60 percent of the index’s gains, while the next seven - Infosys, Shriram Finance, HCL Tech, TCS, M&M, ICICI Bank and Asian Paints- collectively added another 27 per cent.

A handful of heavyweight stocks are doing almost all the hard work, leaving much of the market trailing behind. The result is a market hitting new highs with only a sliver of stocks powering the ascent—leaving much of the investor community watching the celebration from the sidelines rather than taking part in it.

Simply seeing that a trend has gone too far or that a particular industry is stagnating seldom produces good returns. To really be different, you have to do something new. New ideas are the best and most profitable way to be a contrarian.

F&O/ SECTOR WATCH

Despite the fall towards the end of last week, both the Nifty and Bank Nifty indices closed with a modest weekly gain of approximately 0.60%. Moderation in FII selling and their inflows in equity segment gave fillip to beleaguered bulls.

In the options segment, the highest Call open interest for Nifty was observed at the 26,500 and 26,200 strike levels, whereas notable Put open interest was concentrated at the 26,000 and 25,900 strikes. For Bank Nifty, significant Call open interest was seen at the 60,000 and 59,500 strikes, with substantial Put open interest at the 58,500 strike.

Implied volatility (IV) for Nifty’s Call options settled at 10.34 per cent, while Put options concluded at 11.37 per cent. The India VIX, a key indicator of market volatility, concluded the week at 12.13 per cent. The Put-Call Ratio Open Interest (PCR OI) stood at 1.52 for the week.

Nifty is currently trading near its record highs and if FIIs accelerate their purchases in coming days, expect both the Nifty and the Sensex scale new highs. With coming week having both weekly and monthly settlement, traders are advised to closely monitor rollover activity of both stock futures and Index futuresin the December series, as it will provide further clarity on the prevailing trend.

Any retracement in market may be viewed as a buy-on-dip opportunity. In the near term, the resistance for Nifty is seen around 26,400, while support is placed near 26,000.

Stocks looking good areBajaj Finserve, GMR Airports, Eicher Motors, Tata Consumer, TVS Motors and United Spirits.Stocks looking weakare Aurobindo Pharma,CG Power, DLF, Glenmark, JSW Energy, Hindustan Zinc and Torrent Pharma.

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

STOCK PICKS

TVS Srichakra Limited

TVS Srichakra Limited, makers of Eurogrip, TVS Eurogrip and TVS Tyres brands of tyres is one of India’s leading manufacturers and exporters of Two, Three-Wheeler tyres and Off-Highway tyres. It is one of the verticals of the USD 3 Billion TVS Mobility - the holding company for the businesses.

With global research and development capabilities and cutting-edge technology, TVS Srichakra produces industry-leading tyres for the automotive sector in India and worldwide. Headquartered in Madurai, TVS Srichakra has manufacturing facilities in Madurai (Tamil Nadu) and Rudrapur (Uttarakhand) with a production capacity of over 3 million tyres a month.

The company has a design centre in Milan, Italy supporting the R&D centre in Madurai and the tyres are tested in Indian, European, and Japanese road conditions. TVS Srichakra’s products are available in over 85 countries across the world.

The company remains a leading supplier to domestic OEMs – including to manufacturers of both Internal Combustion Engine (ICE) vehicles as well as the growing Electric Vehicle (EV) segment. The company sustained market share in the replacement market in the face of intense competition.

Company also achieved significant share in the growing E-rickshaw segment. In India, the company enjoys a significant market share amongst the original equipment manufacturers and replacement markets and has a comprehensive network of distributors and dealers giving it a robust presence. Sources indicate stock split or bonus issue announcement in near term. Buy for medium term target of Rs7500.