Mkt will remain upbeat if Covid cases drop further

Enthused by a fall in Covid-19 cases, in line corporate earnings for March quarter and favourable global cues; the market had a stellar rally to notch the biggest weekly gains since the budget week. The Sensex spiked 1,807.93 points or 3.71 percent to 50,540.48, while the Nifty rallied 497.50 points or 3.39 percent to 15,175.30, the highest level since March 3, 2021. The BSE Midcap index gained 4.77 percent and Smallcap index was up 4.19 percent during the week.

The broader market outperformance highlights inherent strength of the market that augurs well for durability of the ongoing up trend. Market players expect, broader market to accelerate their relative outperformance wherein catch up activity would be seen in Small cap index, as Nifty Midcap index is hovering around all time high whereas Small cap index is still 5 per cent away from life highs. FIIs continued to sell but in lesser value. Net sales of Rs 1,753.9 crore of shares in the week ended, took the total monthly outflow to Rs 10,467.15 crore in May till date.

DIIs have net bought Rs 1,318.52 crore worth of shares, taking the total inflow to Rs 2,209.72 crore in the month of May. Market players expect surge in volumes if the Covid-19 cases continue to drop coupled with gradual opening of the economy in coming weeks, propelling the markets to fresh record high levels.

WPI inflation numbers hit their 11-year high at 10.49 per cent for April.

Supported by the fall in dollar index along with rally in domestic equity and moderation in Covid-19 cases in India; the Indian rupee appreciated further to close at 72.8 against the US dollar, strengthening by around 47 paisa during the week ended. Commodities at large witnessed volatile trade in last few sessions amid increasing uncertainty about Chinese purchases as well as Federal Reserve's monetary policy.

Observers say the RBI's decision to transfer Rs 991 billion to the government, while higher than expected, is still within its realms of keeping the contingency risk buffer at 5.5 per cent of the RBI's balance sheet. The amount transferred is higher than market expectations, and this additional liquidity will cushion the fiscal deficit burden for the government. The additional amount would help the government offset the impact of lower tax collection due to on-going restrictions, and gives levers for the government to front-end spending especially towards infrastructure growth plus addressing the spending on Covid.

Final stretch of the Q4 earnings season will finally end in the coming week. Key companies to watch out for in the coming week are Sun Pharma, Mahindra & Mahindra, Grasim Industries, BPCL, and Divi Laboratories from the Nifty pack; and Bank of Baroda, India Cements, Alkem Labs, Berger Paints, Cummins India, Cadila Healthcare, Dixon Technologies, Page Industries, Wockhardt, Glenmark Pharmaceuticals, Indian Bank, REC and Ujjivan Financial Services will also announce their numbers during the coming week.

Heard on the Street: Bitcoin Selloff Undermines Case for Cryptocurrencies. The usefulness of bitcoin and other cryptocurrencies as actual currencies took a hit along with their prices this week. Bitcoin bulls sitting on massive long-term gains might be able to laugh off the most recent selloff in it and other cryptocurrencies, but the episode still exposes flaws in the argument for bitcoin as a true substitute for sovereign currencies.

During the week ended gap between the highs / lows was as high as nearly 40 percent. That has brought bitcoin's price in dollars down to levels not seen since…just a few months ago. Someone who bought the cryptocurrency two years ago would still have more than tripled their money. A five-year holder is sitting on gains of over 6,000 per cent. For many speculators, that record will be enough to justify holding on or buying the dip.

But its historic gains rest at least partly on the prospect that it will someday rival major currencies as a store of value and medium of exchange - in other words, a true currency. Events this week serve as a reminder of why that is far from assured. To begin with, the volatility of cryptocurrencies is itself a major drawback. For a speculative risk asset, volatility is actually somewhat desirable. For a currency it most decidedly isn't. A high degree of uncertainty as to what bitcoin will be worth in the near future makes it hard to rely on as a medium of exchange. The payment you are taking for a good or service today might not be exchangeable for other goods and services next week at anything near what you thought.

It is a basic but important point. Secondly, the apparent cause of the most recent volatility is troubling. On Tuesday, three Chinese industry bodies issued a joint notice barring Chinese financial institutions and payments companies from accepting cryptocurrencies as payment or using them as a means of settlement, according to Chinese state media reports. The fact that a government intervention like this can send values plunging undermines a key plank of the case for cryptocurrencies generally and bitcoin specifically: that they are hedges against the capricious actions of sovereign entities.

Having their fortunes depend on the favour of the Chinese Communist Party is hardly what many libertarian crypto evangelists have in mind. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is under review and likely to be tabled in Parliament in coming months. The contours of the bill are not public yet. However, market commentary suggests that it will permit the issuance of a central bank digital currency (CBDC) and the use of block chain and distributed ledger technology that underlies a cryptocurrency.

Cryptocurrencies' appeal as speculative assets can survive any number of selloffs. But to fully realize their potential as currencies, they may need cooperation from the very governments and financial systems they were originally intended to circumvent.

FUTURES & OPTIONS / SECTOR WATCH

Mirroring the "exuberance" in the cash markets, heightened activity with brisk volumes was seen in the derivative segment. Nifty surged towards ten week high and the Bank Nifty outperformed all other sectors to reach two month high and closed above 34600 levels. In the option segment, maximum Call open interest was seen at 15,500, 16,000 and 15,700 strikes, while the maximum Put open interest was seen at 15,000, 14,500 and 14,800 strikes.

Call writing was seen at 15,700, 15,500 and 15,600 strikes with Call unwinding at 15,000, 15,100 and 14,900 strikes. Put writing was seen at 15,000, 15,100 and 14,900 strikes, with Put unwinding at 14,400 and 16,000 strikes. The Implied Volatility (IV) of calls closed at 18.20 per cent while that for put options closed at 19.52 per cent. The Nifty VIX for the week closed at 19.65 per cent.

PCR OI for the week closed at 1.10.

The option data indicated that the Nifty could see a broader trading range of 14,800 to 15,400 levels for coming sessions and experts feel the expiry of May could be in the range of 15,200-15,400 levels. Punters predict heightened activity in Auto, Banking, Cement, FMCG, and IT. Reserve Bank of India (RBI) announcement that it would transfer a surplus of Rs 99,122 crore to the government for the nine-month accounting period ended March 31, is positive for the market.

The banking sector could get a boost directly or indirectly. The PSU banks could get additional funds if required. This will significantly enhance corporate lending of banks and NBFCs. Stay overweight on PSUs and large private sector banks.

STOCK PICKS

­Gayatri Projects

Gayatri Projects Limited is an infrastructure company with over four decades of experience in executing various infrastructure projects, especially in road and irrigation segment. GPL, an ISO 9001 – 2000 company, is engaged in execution of major Civil Works including Concrete/Masonry Dams, Earth Filling Dams, National Highways, Bridges, Canals, Aqueducts, Ports, etc. It specializes in engineering, procurement and construction (EPC) of road, irrigation and industrial projects across India.

Why we are recommending

1. The company is having strong order book of nearly Rs 13,000 crores as at 31st March 2021 and order book mainly consisting of road and irrigation works of 92 per cent. The company is having financial visibility for another three years and order book is going to be further strengthened from expected new orders in FY2021-22.

2. In order to further strengthen its balance sheet &deleverage, the company is exploring avenues to monetize its large claims & arbitrations outstanding. Gayatri Projects, with its subsidiaries has claims outstanding of more than Rs 505 Crores in different arbitral tribunals/courts.

Buy between Rs32-33 for medium term price target of Rs55. In the event of sharp correction in the market, keep stop loss at Rs30. Risk / Reward ratio is 1:7. Low price high risk high return bet.

Greenply Industries

Greenply Industries Limited is an interior infrastructure company. The Company is engaged in the business of manufacturing plywood and allied products, medium density fiber boards (MDF) and allied products through its factories at various locations. The Company's segments include Plywood & Allied Products and Medium Density Fibre Boards & Allied Products.

Why we are recommending

1. One of India's largest plywood manufacturing companies with more than 26 per cent market share in the organised plywood industry.

2. One of the lowest cost high quality plywood manufacturers in India and first from India to commission operations in Gabon to source low-cost high quality raw material. Asset-light model (40 per cent in-house and 60 per cent outsourced by volume including outsourcing of MAT ply) generating higher returns on capital employed.

3. Pioneer in introducing environment friendly and health hazard-free plywood, the Company became the first in India's plywood industry to offer a 300 per cent lifetime warranty for plywood.

Buy between Rs210-220 for medium term price target of Rs325. In the event of sharp correction, keep stop loss at Rs200. Risk / Reward Ratio is 1:5.