Q2 results, global cues to set the tone for mkts

Key corporate earnings season to watch out this week includes HDFC Bank, Bajaj Finance, Bajaj Auto, InduSind Bank, Wipro, HUL, ITC, Nestle India, LTIMindtree, Ultratech Cement, JSW Steel, ICICI Bank, Kotak Mahindra Bank, Jio Financial Services, etc

Absorbing mild shocks triggered by weak commentary and earnings from IT majors and the geo-political tensions from Israel-Hamas conflict; the domestic stock market rebounded smartly from lows of the week and clocked half a percent gains amid consolidation for the week ended. Fall in CPI inflation, healthy industrial productionand expectations of good Q2 earnings have kept the sentiment positive. NSE Nifty inched up 100 points to 19,751, and BSE Sensex rose 287 points to 66,283 points. In line with benchmark indices, in the broader market the Nifty Midcap and Smallcap indices also gained around half a percent each. Elevated US bond yields continued to impact the FII flows as they remained net sellers in India for the third consecutive month. FIIs net sold Rs2,200 crore worth of shares in the cash segment last week, taking the total current month outflow to Rs10,600 crore, though DIIs managed to offset to a large extent by buying nearly Rs8,400 crore worth shares during the month.

The speech in next week by the US Fed Chairman Jerome Powell will also be an important factor to focus on, as Fed is still in favour of one more rate hike by the end of 2023, indicating higher rates for a longer time to fight inflation. Israel-Hamas War seems to be escalating as before preparing for a severe assault, Israeli military issued a warning asking more than one million residents in northern Gaza to shift to south Gaza. The death toll on both sides crossed 3,500. Track developments on this issue carefully. Triggered by the War in Middle East, gold prices have seen a turnaround and traded higher on the back of haven demand.

Additionally, the price got support from recent Dovish comments by several Federal Reserve members. Further rally not ruled out say traders betting on festival demand for gold. Market participants would closely monitor the Q2 earnings season which has high expectations from like sectors Auto, Finance and Oil & Gas. Key corporate earnings season to watch out for in the coming week include HDFC Bank, Bajaj Finance, Bajaj Auto, InduSind Bank, Wipro, Hindustan Unilever, ITC, Nestle India, LTIMindtree, Ultratech Cement, JSW Steel, ICICI Bank, Kotak Mahindra Bank, Jio Financial Services, Federal Bank, Paytm, CEAT, Happiest Minds, ICICI Prudential Life, ICICI Lombard General, L&T Technology, Zee Entertainment Enterprises, PVR Inox, Voltas, JSW Energy, and L&T Finance Holdings. In the primary market next week, Gujarat-based gas distribution company IRM Energy will open its Rs545-crore IPO on October 18 and close on October 20, with a price band of Rs480-505 per share.

Listening Post: How to Keep Your Cool When Markets Are Sizzling

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 markets 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, 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 side-lines 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 gray area of price B.

However, selling isn’t just hard to think about; most of the time, many investors might not think about it at all. When trying to improve a situation, people don’t even consider subtracting from it. Their default solution is to try adding something instead. We “don’t think of subtraction as an option in the first place,” When it comes to investing, know that extra holdings keep getting barnacled onto portfolio during every bull market, no matter how hard you try to simplify. How about you? 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.

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

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.

F&O / SECTOR WATCH

Amid sector and stock-specific action, the derivatives segment exhibited mixed performance over the past week. NSE Nifty recorded a modest 0.5 per cent gain, while the Bank Nifty experienced a slight 0.16 per cent loss. Among the sectors, on the back of Q2 earnings announcements, PSU Banks and IT witnessed renewed selling pressure. On the flip side, Realty, Auto and FMCG sectors notched notable gains, reflecting changing preferences of market players. As per the weekly options data, the maximum Call Open Interest was seen at 19,800 strike, followed by 19,900 & 20,000 strikes; maximum Put Open Interest was at 19,700 strike, followed by 19,000 & 19,600 strikes. For the Bank Nifty, the highest Call Open Interest was observed at strikes 44,500 and 44,600 whereas the highest Put Open Interest was concentrated at strike 44,000 points. In terms of Implied Volatility (IV), Call options for Nifty settled at 9.83 per cent, while for Put options concluded at 10.43 per cent. The Nifty VIX, which serves as a gauge of market volatility, closed the week at 10.62 per cent. The Put-Call Ratio of Open Interest (PCR OI) stood at 1.29 for the week. Techies expect Nifty to trade in broader range of 20,000 and 19,500 whereas either side breakout can give further directional momentum to the index. Analysts said the IT results so far have surprised on the deal flow and margin front, but disappointed on the revenues and guidance front. The country’s largest private sector lender HDFC Bank will report its merged financials for the first time after merger of HDFC on Monday. All eyes will be on net interest margin (NIM) in Q2 and changes in other financial ratios. Stock futures looking good are Ashok Leyland, Bajaj Finserv, Godrej Properties, Metropolis Health, Tata Motors and Tata Consumer. Stock futures looking weak are Asian Paints, BOB, India Cements, Deepak Nitrate, HPCL, and TechMahindra.

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