Easing lockdown, positive global cues make mkt to continue the wining streak
Sustained by receding corona cases, easing lockdown restrictions in the country, renewed buying from FIIs and positive global cues; markets endured their winning streak over fourth consecutive week.
The BSE Sensex touched new all-time high on Friday, rising 374.71 points to 52,474.76, while Nifty gained 129.10 points to close at 15,799.35, during the week. The broader markets relatively outperformed with the BSE midcap and smallcap indices moving up by 2 and 3.5 per cent respectively. 77 per cent of the stocks in which retail investors hiked stake as at end-March 2021 are from the mid- and small-cap space. With markets having run up sharply, investments into small and mid-sized companies without considering fundamentals could be risky caution experts.
Over the weekend, the GST Council slashed the levy on several goods used for treatment of Covid-19 - ranging from key medicines and oxygen to hand sanitizers, pulse oximeters and ambulances - while leaving the rate on vaccines unchanged at five per cent. The new rates will be applicable for a limited period - until September. IIP growth technically jumped 134 per cent year-on-year in April, mainly due to the base effect. According to National Statistical Office (NSO) data, the index of industrial production surged to 126.6 in April 2021 from 54.0 in the same month last year, when the nationwide lockdown to curb the spread of Covid-19 had brought production to halt at most units.
CPI and WPI inflation for the month of May will be released on Monday, while Balance of Trade data for May will be announced on Tuesday. US FOMC meeting is a big event for global markets in the week ahead. Although the Fed is not expected to take any action, tweaks in interest rate forecasts are likely. The Fed is expected to signal a taper well before it takes any action. The results of the meeting are expected on Wednesday. It is pertinent to observe that the yield on the benchmark 10-year treasury note closed below 1.5 per cent, its lowest level in more than three months, dragged down by tepid economic data and high demand from investors both in the US and elsewhere.
The primary market will be getting busy next week as four IPOs (initial public offerings) - Shyam Metalics, Sona Comstar, Dodla Dairy and KIMS hospitals are lined up in the coming week, looking to raise a total of ₹9,132 crore from share sales. The price band for Sona Comstar has been fixed at Rs 285-291 per equity share, and Shyam Metalics at Rs 303-306 per equity share. Dodla has fixed a price band for its public issue at Rs 421-428 per share, and KIMS at Rs 815-825 per share. Observers expect some outflow of money from secondary market to primary market to capitalize on possible listing gains.
Heard on the Street
You Can't Invest Without Trading. You Can Trade Without Investing. Understanding the difference between speculation and investing is essential to avoiding reckless risk. An investor relies on internal sources of return: earnings, income, and growth in the value of assets. A speculator counts on external sources of return: primarily whether somebody else will pay more, regardless of fundamental value.
The word investor comes from the Latin 'investire', to dress in or clothe oneself, surround or envelop. You would never wear clothes without knowing what colour they are or what material they're made of. Likewise, you can't invest in an asset you know nothing about. If you think you're investing when you're speculating, you'll attribute even momentary success to skill even though luck is the likeliest explanation. That can lead you to take reckless risks. Take speculating too seriously, and it turns into an obsession and an addiction. You become incapable of accepting your losses or focusing on the future more than a few minutes ahead.
Next thing you know, you're throwing even more money onto the bonfire. Calling novice speculators 'investors' is one of the most powerful ways marketers fuel excessive trading.
Do your homework before makinsg a decision. Once you've made a decision, make sure to re-evaluate your portfolio on a timely basis. A wise holding today may not be a wise holding in the future.
F&O / SECTOR WATCH
Mirroring the 'exuberance' in the cash market, derivative segment witnessed brisk trading. Amidst bouts of selling, bulls managed to sustain the momentum in the indices. On the options front, maximum Call open interest was seen at 16,000, 15,800 and 16,200 strikes, while the maximum Put open interest was seen at 15,000 strike, followed by 15,700 and 15,800 strikes. Call writing was seen at 16,200, 16,000 and 16,500 strikes with Call unwinding at 15,700 strike. Put writing was seen at 15,000 strike, followed by 15,800 and 15,500 strikes. Tug of war was seen among bulls and bears at 15,800 strike as both call and put writers were seen adding hefty open interest on both the sides.
The Implied Volatility (IV) of calls closed at 13.36 per cent while that for put options closed at 14.31 per cent. The Nifty VIX for the week closed at 15.00 per cent. Low levels also suggest some caution in the market, which may result in extended consolidation in the index. PCR OI for the week closed at 1.68. Option data indicated that the Nifty could see an immediate trading range of 15,500 to 16,000 levels in coming days. For coming week, expect bias to remain in favour of bulls with Nifty getting major support at 15,600-15,500 zone.
Sectorally, IT, pharma and PSU outperformed while financials and consumption stocks took a breather. Intraday volumes have dried up, either due to peak margin requirements or lack of retail participants' confidence at the current market levels. More and more stock-specific moves warrant very efficient risk management by the market players. Put trailing stop-losses, as vigilant protection of profits at current and higher levels. Metal companies are likely to witness better earnings and capacity utilisation levels in the coming quarters of FY22 mainly on account of buoyant steel prices which touched record high levels despite weak domestic demand in the first quarter due to the second wave of the pandemic.
Taking advantage of the steel cycle, large steelmakers either planned for further capacity expansions or deleveraged substantially. Use corrections to buy top four steelmakers, Tata Steel, JSPL, JSW Steel and SAIL. Adani group is expected to raise $500 million through a private placement of shares in Adani Airports Holdings before an eventual initial public offering and is targeting a valuation of Rs 25,500-29,200 crore ($3.5-4 billion) for the business. It is interesting to observe that GMR Infra along with its airport business has valuation of just Rs16,300 crores. Buy GMR Infra at current levels for target price of Rs40 in next few weeks say savvy punters. Stock futures looking good are GMR Infra, Jindal Steel, REC, TCS, L&T Technology, UBL and Zee Entertainment. Stock futures looking weak are Amaraja, CUB, Granules, Escorts, Exide Inds and Petronet.
Just Dial Limited
Just Dial Limited is a local search engine company. The company is engaged in providing search and related services. It is also engaged in other information service activities. The company offers its services across various platforms, such as voice, web, mobile internet and mobile applications. It provides search plus transact services across various categories and platforms, and JD Omni services for its customers. It offers an array of search plus services, including order food online, book a doctor's appointment online, book movie tickets online, book a cab/flight/bus online, order grocery online, schedule a laundry pick-up online and schedule a courier pick-up online, among others.
JD Omni is a cloud-based solution, which can be accessed over cell phones and allows controlling and monitoring capabilities to business owners through a dashboard. The product allows small businesses to manage their inventory, billing and third-party logistics. It operates in India and outside India.
Why we are recommending
- First mover advantage in Indian local search market. Strong Brand Recognition with 129.1 million unique quarterly visitors^ in Q4 FY21 (132.6 million in Q3 FY21)
- Digitisation of economy after corona pandemic is big positive for companies like Just Dial.
- Probable takeover candidate. Big players like Tata, RIL and others reportedly showing good interest in the company.
Buy between Rs975-985 for price target of Rs2000 in 12 to 18 months' time frame. Since the stock had good run up in recent times, stock loss should be slightly deep at Rs850.
VA Tech Wabag Limited
VA Tech Wabag Limited is a company engaged in water treatment field. The company's principal activities include design, supply, installation, construction and operational management of drinking water, wastewater treatment, industrial water treatment and desalination plants. The company's segments include India and Rest of World. Its product portfolio includes water reclamation, municipal used water treatment, industrial effluent treatment, anaerobic sludge treatment, and industrial water reuse and recycling.
The company has four clusters: India, Europe, Middle East & Africa (MEA), and Latin America (LATAM). The India cluster provides end-to-end water solutions for drinking water and wastewater plants, both in the municipal and industrial sectors. The European cluster caters to small and mid-sized projects. The MEA cluster has two major regions: the Middle East and Africa. The LATAM cluster has countries, including Brazil, Chile, Colombia, Ecuador, Mexico and Peru.
Why we are recommending
- World's Top 50 Private water operators WABAG ranked 4th globally by GWI for ensuring safe and clean drinking water and sanitation.
- Offering spanning across municipal drinking water, municipal sewage, industrial water, industrial effluents, desalination and recycle.
- Technology focused company - owns more than 90 IP rights.
- Significant debt reduction across the Group • Gross debt reduction of 33 per cent in FY 21 • Turned around from net debt to net cash position in FY 21.
Buy between Rs285-295 for price target of Rs500 in 9 to 12 months. Keep stop loss below Rs250.