War News Steering Domestic Mkts Direction

Just 2 issues: firstly developments on Indo-Pak border and secondly progress of tariff talks by USA with different countries- will dictate the near-term direction

Spooked by the sharp escalation in the ongoing border tensions between India and Pakistan; the domestic stock market ignored positive global cues like US-UK trade talks, US-Chine trade negotiations, ECB rate cut, continued FII buying and Free Trade Agreement (FTA) between UK-India. The benchmark indices fell by more than a percent during the week ended. For the week, BSE Sensex index declined 1,047.52 points or 1.3 percent to close at 79,454.47, and NSE Nifty shed 338.7 points or 1.4 per cent to close at 24,008 points. In the broader market, the Mid-cap Index fell 1.4 per cent and the Small-cap index shed 1.3 per cent. Sectorally, Nifty Realty index plunged 6.5 per cent, Nifty PSU Bank index shed 4.4 per cent, Nifty Bank, Pharma, Energy, Oil & Gas down more than two per cent each. FIIs remained net buyers for the fourth consecutive week with purchases of equities worth Rs5,087.42 crore, while DIIs bought equities worth Rs10,450.96 crore. Under the shadow of war clouds, the Indian rupee ended lower against the US dollar as domestic currency slipped 81 to end at 85.37 per dollar on May 9 against the May 2 closing of 84.56. After the weekend announcement of Cease Fire, the odds of a full-scale war between India and Pakistan remain extremely low—just about 1%—and not something investors can predict or position for. Resilience and long-term strength of Indian equity market as a global investment destination, despite temporary geopolitical flare-ups cannot be doubted say observers. Even if there is a fresh escalation of border tensions and markets fall further, savvy old timers expect Indian equities to rebound sharply when the war scenario stops. Going by history, markets will come back with a vengeance, recovering at least 80 per cent of the loss. It is pertinent to observe that the ETFs recorded the highest ever inflows amounting to Rs19,056.66 crore in April. Other fund categories continued to attract strong investor interest, witnessing an inflow of Rs20,229 crore in April, marking the 54th consecutive month of net inflows. Near-term direction of markets will be dictated by just two issues: firstly developments on Indo-Pak border and secondly progress of tariff talks by USA with different countries.

US Market Musings: One way to think about the plunge and rebound in US stocks since ‘Liberation Day’ on April 2 is that beforehand investors thought a 10 per cent tariff would be the worst case, and afterward they thought a 10 per cent tariff was the best case. Stocks fell because tariffs were far bigger than expected, then recovered when tariffs were delayed and talks began. The Trump administration announced a trade deal with the UK and signalled a softer tone with China—floating the idea of 80 per cent tariffs rather than 145 per cent— but Chinese export data showed a steep decline in April. Observers think original enthusiasm around trade deals is giving way to the realistic aspect that it’s going to take a while. Still, renewed volatility in stocks after the China meeting is also a possibility.

You are an investor, not someone who can predict the future. Base your decisions on real facts and analysis rather than risky, speculative forecasts.

F&O/ SECTOR WATCH

Unnerved by the geopolitical tensions between India and Pakistan; sharp whipsaw movements were seen in several stock futures in the derivative segment. In the options market, prominent Call Open Interest for Nifty was seen at the 24,000 and 24,500 strikes, while the notable Put Open Interest was at the 24,000 strike. For Bank Nifty, the prominent Call Open Interest was seen at the 54,000 strike, whereas notable Put Open Interest was at the 54,000 and 53,500 strikes. Implied Volatility (IV) for Nifty’s Call options settled at 18.11 per cent, while Put options conclude at 18.72 per cent. The India VIX, a key market volatility indicator, closed the week at 21.01 per cent. The Put-Call Ratio of Open Interest (PCR OI) for the week was 1.21. The 200-DMA is at 24,044 points; the 50-week MA is at 23,983 points. This makes the zone of 23,950-24,050 a very important support zone for the Nifty. So long as the Index is able to defend this zone, it will continue consolidating in a defined range. Traders are advised to closely monitor news developments in the upcoming sessions for any signs of escalation or de-escalation in tensions between India and Pakistan. Contrarian buying is strongly suggested in PSU banks. Most of them are available at low single digit P/Es and cum dividend offering good yield. Buy Canara Bank and Indian Bank at current valuations. Positive impact indicated on Auto sector after the trade deal between the US and UK. Stocks looking good are BEL, Canara Bank, Dalmia Bharat, L&T, REC, Tata Motors and UPL. Stocks looking weak are ACC, Chambal Fert, HUDCO, Hind Zinc, M&M Financial, Shriram Finance and Titagarh.

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

STOCK PICKS

KPR Mill Ltd

KPR Mill Ltd is a textile company engaged in the business of yarn, fabrics, garments, green power, sugar and ethanol. The company’s segments include textile, sugar and others. It produces yarns in a comprehensive range and varieties like compact yarn, combed yarn, carded yarn, melange yarn, polyester cotton, viscose yarn, grindel yarn and red label yarn. Its fabric products include the entire range of single jersey (also with lycra/spandex), interlock, rib, two and three thread fleece, pique polo, flat bed collar are key products. The company provides a range of inner wear and athleisure wear for the Indian market under the brand name FASO. It provides men’s wear and women’s wear. It provides various garment types, such as casual wear, sportswear, active wear, sleep wear and work wear. It has a capacity to produce approximately 1,00,000 metric tons (MT) of cotton yarn; 4,000 MT Viscose vortex yarn per annum; 40,000 MT fabrics per annum, and others. The company’s sugar plants have an aggregate capacity of 20,000 TCD and Ethanol Plants with 500 KLPD capacity. The company has 63-MW windmill capacity; 37-MW solar power; 93-MW co-gen power (overall 193-MW renewable energy catering to most of its power needs through Green Energy). Buy on declines for medium term target of Rs2,000.