RBI Repo Cut Sparks Rally; Benchmarks Eye New Highs

Despite global headwinds and renewed FII selling; supported by strong DIIs buying and positive domestic GDP data and RBI cut of the repo rate by 50 bps to 5.50% and CRR by 100bps to 3%; markets closed the week ended on optimistic note.

For the week, the Sensex added 737.98 points or 0.9 per cent to finish at 82,188.99, and the Nifty jumped 252.35 points or 1.01 per cent to end at 25,003.05. Broader markets outperformed the benchmark indices with both the BSE Mid-cap Index and the BSE Small-cap rising over 2 per cent. FIIs remained net sellers in the third consecutive week as they sold equities worth Rs 3,565.88 crore. On the other hand, DIIs continued their buying in the seventh consecutive week with purchases worth Rs 25,513.43 crore. The Indian rupee ended marginally lower against the US dollar as domestic currency finished at 85.63 per dollar.

A dovish RBI surprised markets with a 50-basis point (bp) cut to the repo rate and a 100-bp reduction in the cash reserve ratio (CRR). This follows earlier repo rate cuts of 25 bps each in February and April. Bolstered by supportive macro indicators such as strong Q4 GDP, GST collection, and a favourable monsoon, market forecasters expect benchmark indices to cross historic highs well before Diwali. DIIs buying was focused on domestically oriented and interest-sensitive sectors such as Financials, Real Estate, Retail and FMCG.

In the US markets, despite a mildly positive bias from strong US job data and expectations of easing US-China trade tensions; the big headline has been the spat or breakup between Elon Musk and Donald Trump. There are many things that could happen. Let us see how it pans out. Weakness in Tesla shares showcase vulnerability of “politically tainted” stocks. With PM Modi accepting invite to attend the G7 Summit; and the summit expected to deliberate several key issues in the backdrop of Trump’s tariff wars; it would be wise to track developments at G7 summit.

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

FUTURES & OPTIONS / SECTOR WATCH

Spurred by the RBI’s 50 basis point rate cut, derivative segment witnessed spike in trading volumes. Nifty rose over 1%, while Bank Nifty outperformed with gains of around 1.5%. Among sectors, Realty, Capital Markets and NBFCs led the gains. In the Options segment, prominent Call open interest for the Nifty was seen at the 25,000 and 25,500 strikes, while the notable Put open interest was at the 25,000 and 24,800 strikes. For the Bank Nifty, the prominent Call open interest was seen at the 56,000 and 57,000 strikes, whereas notable Put open interest was at the 56,000 strike. Implied volatility (IV) for Nifty’s Call options settled at 14.38%, while Put options concluded at 15.41%. The India VIX, a key market volatility indicator, closed the week at 15.08%. The Put-Call Ratio Open Interest (PCR OI) for the week was 1.03. Nifty is currently positioned at the upper band of the consolidation range of 24,400–25,100. Chartists expect the Nifty to move above the upper band of the range and head higher towards the immediate resistances of 25,250 and then 25,500 in the coming weeks. Any dips should be viewed as a buying opportunity, with key short-term supports placed at 24,700 and 24,400. A Traders in stock futures would do well to track the flurry of corporate actions lined up this week, including record dates for dividends, stock splits, rights issues, and bonus shares. Close watch is warranted in the five Tata Group stocks and five Adani Group stocks that will trade ex-dividend this week. Stocks looking good are Fortis, HDFC AMC, Indian Bank, PNB Hsg, PPL Pharma, Shriram Finance, and Unominda. Stocks looking weak are Biocon, BDL, Colgate, KPIT Tech, Kaynes, Mankind and Tata Technologies.

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

STOCK PICKS

Federal-Mogul Goetze (India) Ltd

The company is engaged in the manufacturing of automotive components of four wheelers, such as steel rings used in passenger vehicles. The company manufactures pistons, piston rings, sintered parts and cylinder liners covering a range of applications including two/three-wheelers, cars, sport utility vehicles, tractors, light commercial vehicles, heavy commercial vehicles, stationary engines and high output locomotive diesel engines. Its range of piston rings and pistons vary from 30 millimetres (mm) to 300 mm diameter. It manufactures wet and dry cylinder liners with honing and sleeves for bi-wheeler applications for its customers. Its cylinder liners product range varies from 50 mm to 120 mm internal diameter. It produces a range of sintered metal products for a variety of engines and automotive applications, such as valve trains, transmission, lubrication pumps, and other engine/structural parts with technical assistance. The company operates in two principal geographical areas of the world, i.e., within India and other countries (outside India). During the year, the company took steps to avail 23 Mega Watt of Solar Power for its Bangalore Plant. The company now acquires around 95% of its overall Bangalore Plant’s energy requirements from the new Solar and existing Wind energy sources. Availing Green Energy has not only led to financial savings but also helped the company in considerably reducing the carbon footprints generated by the Bangalore Plant. Buy on declines for medium term price target of Rs875.