Avoid overnight exposure, stick to large-caps

Markets in the July 7-13 period crossed important resistances and hurdles, but were unable to sustain at the levels and corrected from crucial levels. While the correction in net terms for the period was insignificant and could be termed as flattish, the fall from the highs was significant. BSE Sensex lost 236.82 points or 0.44 per cent to close at 53,514.15 points, while Nifty lost 23.15 points or 0.14 per cent to close at 15,966.65 points. The intraweek highs made on Friday were at 54,627 points and 16,275 points respectively. The markets gained on two of the five trading sessions and lost on the remaining three.

Dow Jones had a flattish, but volatile week. It ended with gains of 13.88 points or 0.04 per cent to close at 30,981.33 points. Dow saw gains for the first two days followed by declines on the remaining three days. The US FED meets in another fortnight and is expected to raise rates by about 75 basis points. While the market has factored the rate hike, they continue to be nervous as the minutes of the meeting and the tenor of the same are more important. This would indicate the future hikes.

In economic news, Retail inflation was marginally lower at 7.01 per cent against 7.04 per cent in the month of May. However, it has been higher than the seven per cent level of RBI for the sixth month in a row. In India too, a rate hike is expected when RBI meets in August for its policy review meeting.

Index of Industrial production (IIP) grew to 19.6 per cent in May 2022 compared to 6.7 per cent in April 2022. The number is positive and was well supported and confirmed when GST numbers for the period showed a corresponding growth as well.

FPI selling seems to have abated for a week or so where they sold about Rs2,200 crore cumulatively in 5 trading days against a daily average of Rs2,600 crore. Over the last two days, their sales have again increased. Not sure which way they would go here on.

TCS was one of the first amongst the large companies to declare results. While revenues were on expected lines, the profits were under pressure due to higher manpower costs. These were on account of attrition which has been high. Further there has been a significant increase in travel costs as businesses return to in-person meetings compared to Zoom calls. One would like to see when other companies like Infosys and Wipro declare their results whether this was unique to TCS or experienced by all the players. The share closed at Rs3,038.55 on BSE on Wednesday, having lost Rs 177.60 or 5.53 per cent during the period under review. The entire IT pack has taken a beating post the TCS results.

The gap of 13th June which was acting as a resistance over the last month was finally filled. The gap was at the level of 15,886 points to 16,172 points on Nifty while it was at 53,207 to 54,205 levels on the BSE Sensex. These levels would become immediate resistances for the market and even more so as we have corrected from them immediately after crossing or filling the gap.

Markets are confused and seem waiting and waiting for bigger triggers. While none are expected immediately, the result season which is on may provide some pleasant or unpleasant surprises. Whether they would be enough to provide the triggers is not sure.

Coming to the markets in the period between July 14th - 20th, one should expect markets to remain in a broad range. While there could be an effort made to once again take the markets above the gap, it would be a difficult task as after crossing the gap we need to sustain it. The experience of last week has not been a satisfactory one. Keeping this in mind, markets have immediate resistances at 16,125-16,175 and at 54,100-54,200. Assuming we cross this, the next levels are at 16,350-16,400 and at 55,200-55,400 levels. On support, levels of 53,650-53,850 and 15,800-15,850 respectively are immediate supports. If these break, the next levels are at 53,000-53,200 and at 15,500-15,550 levels.

The strategy would be to avoid overnight exposure and trade in large-cap stocks. Select mid-cap stocks could also be looked at. For the risk taker playing in stocks, which are to declare their results could also be looked at in case one has a view looking at the industry performance. In a market where movement is largely rangebound, one should trade cautiously and avoid large exposure.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)