All eyes on RBI policy meet

With most of the known negatives, like US Fed and RBI interest rate hikes and liquidity reductions, global supply chain constraints, high commodity prices, Russia-Ukraine war, general inflation, etc., priced in and discounted, markets are clearly showing signs of resilient recovery. Buoyed by positive global cues like signs of reopening of the Chinese economy and evidence of continued economic growth in the US and favourable updates on monsoon progress equity markets marked their third successive week of gains during the week ended.

The Sensex climbed 885 points or 1.6 percent to 55,769 and the Nifty jumped 232 points or 1.4 percent to 16,584.Broader indices also witnessed decent traction with the BSE Midcap index rising 257 points or 1.14 percent to 22,775 and the Smallcap climbing 763 points or three percent to 26,384. High-frequency data like GST collection, strong auto sales in May and PMI have shown a good start to FY23 and gave strength to the market. Reliance Industries rose nearly eight percent in one of its best weekly performances of the year on hopes of strong June quarter earnings as global refining margins continued to strengthen. The earlier-than-expected arrival of the south-west monsoons rains in the country have helped ease investor concern around food prices, but in coming weeks the market will track the progress of the seasonal rains. Monsoons progress to critical agricultural hotspots of the country will be important to gauge crop yields, farm income and rural demand scenario that companies might face in the festive season.

The RBI's Monetary Policy Committee will meet in the coming week with the outcome of the meeting expected on June 8. Observers feel that a hike in interest rate was a 'no-brainer', however, the only question is, the quantum of the hike. Many expect the hike to be between 0.25 to 0.75-basis points (bps) in the repo rate. It is pertinent to observe that the US stocks suffered losses for the week after the latest employment report showed the US labour market added jobs at a strong, but slower clip in May. US Federal Reserve officials are closely monitoring the state of the labour market as they decide how much and how quickly to raise interest rates in the coming months. Near-term direction of the markets will be dictated by RBI Policy meeting, macroeconomic data, international crude oil prices and global cues.Investors are advised to keep following the stock specific approach for better investment opportunities.

Listening Post: Buying stocks as they drop is harder than it sounds. Here's one strategy that might help keep you on course in turbulent times. All investors are the prisoners of their past, and that shapes how they face the future.

Until the past few weeks, stocks had resembled a perpetual moneymaking machine, rising smoothly for nearly all of a decade and a half. From March 2009 through the peak this January, stocks gained more than 800 per cent. The pandemic panic of February and March 2020 lasted only five weeks. So it's understandable if you think the nearly 20 per cent collapse so far this year is just a blip. Stocks will soon resume their smooth upward course, right? In that case, you will need new weapons in your psychological arsenal. Years on end of poor stock returns would torment anyone who isn't prepared for a long grind. One weapon to consider is called value averaging.

It's like buying the dips—purchasing more stocks as prices drop—on steroids. At its heart, this technique combines two basic ideas: rupee-cost averaging (putting money to work automatically every month or quarter) and rebalancing (selling some of your winners and buying some of your losers). When markets are turning downward, some investors try to make a profit by using a strategy known as buying the dip. This approach is risky in today's volatile market, even though it can be tempting. In value averaging, you set a target amount by which you want your account to grow each period. Most investors say they intend to buy and hold—but many end up buying high and selling low instead.

Investors who use value averaging 'have pre-committed to bury their demons,' "the greed demon that makes you buy high and the fear demon that makes you sell low." This technique can't eliminate the risk of underperformance, however. "If you cherry-pick certain periods, value averaging can look horrible," "Your success is always going to depend on the starting point and ending point."The strategy does better when volatility is high and worse when stocks move smoothly up or down. In a long, steady market, "there's nothing better than buy-and-hold, just sitting on it." Then again, if you don't have the discipline to buy and hold, you might not have the extra discipline to buy even more in a down market.Few things are harder than buying more when markets fall. That's why discipline is an investing superpower. Value averaging could help some people stay the course—but it takes work, and it won't work all the time. Then again, in markets nothing works all the time.

Quote of the week: The individual investor should act consistently as an investor and not as a speculator

— Ben Graham

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

Mirroring the resilience in the cash market, derivatives segment witnessed robust volumes. Options data suggest that Nifty is likely to remain under pressure in upcoming week as far it is trading below 16800 levels. Aggressive call writing was seen at 16800 CE. On downside, 16500 level is likely to provide immediate support to Nifty. On the put options side, traders added long positions in out-of-money strike prices suggesting possibility of some more downside for the Nifty after the Friday correction. Implied Volatility (IV) of Calls closed at 18.38 per cent, while that for Put options closed at 19.79 per cent. The Nifty VIX for the week closed at 20.32 per cent. PCR of OI for the week closed at 1.36.

Technical charts suggest that index is likely to remain volatile in upcoming week as well and may consolidate in broader range. However, bias is likely to remain in favour of bulls with stock-specific action becoming order of the day.The support for the Nifty is likely to be around 16,350-16,400 points while 16,800 points remains a key resistance.Avoid aggressive bets as Nifty likely to face resistance near 16,900-17,200. Steel prices in the domestic market have fallen by almost a tenth in the two weeks since the Centre levied export duty. Prices of domestic benchmark hot-rolled coil (HRC) steel at the traders' end have slipped by about 8% or Rs5,500 to about Rs63,800 per tonne since May 18.However,a drop in coking coal prices worldwide has provided relief to steel manufacturers. Use present decline to buy Tata Steel and JSW Steel. In the past six months, December 2021 to May 2022, Tata Motors overtook Hyundai India in the domestic market by twice and became the second largest passenger vehicle maker in the country. Stay invested for target price of Rs550 in next few months. Stock futures looking good are Balrampur Chini, City Union Bank, ICICI Prudential, Jubilant Food, M&M Finance, TCS, Petronet LNG and United Breweries.Stock futures looking weak areAarti Inds, Dixon, Havells, Glenmark, Godrej Properties, Metropolis,Ramco Cements and Voltas.