Better to wait for cues from Q2 results

Macroeconomic data, crude prices, RBI Policy meet and global cues will dictate near-term direction of the market. Indian markets will remain shut for trading on Monday (Oct 2) on account of Mahatma Gandhi’s birth anniversary. Chinese markets will remain closed during October 2-6

Dragged by concerns over rising crude oil prices, unabated FII selling, fears of inflationary pressures, which were compounded by fears of another rate hike by the Fed, and rising bond yields; the frontline indices ended the week on weak footing. NSE Nifty settled 0.18 per cent down at 19,638 and BSE Sensex was down 0.27 percent at 65,828 for the week. However, the broader market outperformed with Nifty Mid-cap and Nifty Small-cap gaining one percent and 2.18 per cent for the week, respectively. FIIs net sold equities worth Rs8,430.77 crore, while DIIs net bought equities worth Rs8,143.28 crore. Cumulatively, FIIs net sold Rs26,692.16 crore worth of equities in the month of September, while DIIs net bought equities worth Rs20,312.65 crore. Observation is that strong dollar index has usually coincided with an increase in foreign outflows within emerging markets like India and a weaker dollar index has usually coincided with an increase in foreign inflows within emerging markets like India. Going ahead, it will be key to monitor this trend in the backdrop of easing the dollar index. Key event in the week ahead will be the RBI Monetary Policy Committee (MPC) meeting scheduled for October 4-6, 2023. The RBI is likely to maintain status quo on policy rates for the fourth time in a row as retail inflation continues to remain high and the US Federal Reserve has decided to keep a hawkish stance for some more time, according to observers.

The RBI raised the benchmark repo rate to 6.5 percent on February 8, 2023, and since then it has retained the rates at the same level. In near-term firm trend in international crude oil prices will now be dictated by the OPEC meeting due on October 4. While supply increases by Russia and Saudi Arabia can come as a relief, many feel that OPEC+ is unlikely to tweak its current oil output policy. If crude continues to stay above the $90 level, it will be a threat to inflation and impact the operational margins of many sectors.

Near-term direction of the market will be dictated by macroeconomic data, crude prices, RBI Policy meet and global cues. Indian markets will remain shut for trading on Monday, October 2, on account of Mahatma Gandhi’s birth anniversary. Chinese markets will remain closed on October 2-6.

Listening Post: How to Invest in These Very Confusing Times

There’s no perfect way to tackle this problem, but there are broad choices for investors to make. For investors, the danger isn’t so much day-to-day volatility, but the danger of extreme outcomes in the longer run. Economists have rarely been so divided about the future aside from during recession, and sensible investors shouldn’t have much confidence in their own forecasts, either. It’s a hard time to put money to work. However, the forecasts for the Indian economy though not rosy are good enough to infuse confidence among the investors. The uncertainty is worsened by the division between data regarded as soft, typically based on surveys and subject to the mood of those questioned, and hard data such as unemployment or retail sales.

Hard data has been very strong, while soft data has been very weak. An uncertain outlook leads to more volatility. Markets swing a lot more when daily data brings big surprises compared with the forecast. (Again, hard data has been surprisingly good, soft data not). Fund managers are also more likely to buy options to protect their portfolios, pushing up the cost of options and implied volatility. Sure enough, volatility has been rising since the low at the start of February, but is still far below last year’s highs. To some extent, the volatility rise merely corrects for it being so low at the start of February, when investors were overly optimistic. But it also reflects the genuine economic puzzle. For investors trying to build a portfolio, the danger isn’t so much day-to-day volatility, but the danger of extreme outcomes in the longer run, what financiers call fat tails. There’s no perfect way to tackle this problem. Assets that do better during inflation tend to do poorly in recession, and vice versa. Here are two broad choices:

Diversify, and accept the low long-term expected returns the market is offering. A standard 60 per cent stocks, 40 per cent FD portfolio will very occasionally do terribly, as last year, if everything goes badly. But most of the time the FDs offer a cushion against bad outcomes, while the stocks pick up when things go well. Further diversify into large-cap stocks and FDs, property and commodities to cover all the bases. Some part of the portfolio will probably do badly in an extreme outcome, but some part will do well, too, and they are unlikely perfectly to offset. The rest of the time, both should bring returns.

Scenario planning. After taking a view, consider how your portfolio would perform if you’re dead wrong. Stocks almost always perform dismally in recessions. If the portfolio would lose horribly in a plausible scenario, consider what it would cost to protect against it. Options can be used for shorting phases, although require maintenance to roll them over and monitor. Or assets that would move a lot in an extreme outcome—companies with a lot of leverage or operational risk are obvious examples—can be used. Beware complication, though: One of the big risks investors have is that they get their forecasts right, but are wrong about how prices will respond.

The most important thing to remember is that uncertainty is normal, and is good for investors, just so long as it comes with enough of a reward. If everyone knew what was going to happen, there would be no risk, and so no reward.

Quote of the week: ‘An investment in knowledge pays the best interest.’ — Benjamin Franklin

When it comes to investing, nothing will pay off more than educating yourself. Do the necessary research and analysis before making any investment decisions.

F&O / SECTOR WATCH

The settlement week saw derivatives segment grappling with heightened volatility and multiple headwinds. Rollovers in Nifty futures declined with Nifty rollovers at 76 per cent (last month 78%), below last 3-month average of 79 per cent. On the flip side, Bank Nifty boasts a rollover rate of 85 per cent, surpassing the average rollover rate of the last three months. On other hand, market wide rollovers stood at 92 per cent (last month’s market wide 91%). Rollover Cost is at 0.53, higher for previous month on month cost of 0.48, above 3-mth average of 0.51. On the weekly options front, the maximum Call Open Interest was seen at 19,800 strike, followed by 19,700 & 20,200 strikes; while the maximum Put Open Interest was visible at 19,600 strike, followed by 19,500 strike. In Bank Nifty, the highest Call Open Interest was seen at the 45,000 strike, while on the Put side, it was noted at the 44,500 strike. Implied Volatility (IV) for Call options in Nifty settled at 11.85 per cent, whereas Put options concluded at 12.38 per cent. The India VIX, an indicator of market volatility, ended the week at 12.82 per cent. The Put-Call Ratio of Open Interest (PCR OI), which stood at 1.46 for the week, suggested a greater inclination towards Put writing over Calls. Expect Bank Nifty to demonstrate outperformance as compared to Nifty in the October series. In the upcoming week, techies predict Nifty’s trading range of 19,400 and 19,800 levels.

Traders are advised to keep a vigilant eye on the India VIX, particularly if it begins to rebound from the support level. Historically, October has been good month for markets and market experts believe that the ‘sell on rally’ market construct is likely to change, pushing Nifty back towards the psychological 20,000 mark. In the coming week, the market will first react to September auto sales numbers announced in the initial days of October. Vehicle sales are estimated to touch a new high in the April to September 2023 period, fuelled by a spate of new launches in the SUV segment. Stay overweight in the sector. Buy Ashok Leyland, Tata Motors and Maruti. Commentary of global IT services major Accenture had domino effect on Indian IT majors during the week ended. However, avoid fresh selling and wait for companies forecast during Q2 results announcements, advice industry observers. Infrastructure stocks witnessed renewed buying interest last week, followed by metal stocks. Stock futures looking good are Apollo Hospitals, Balakrishna Inds, Granules, SBIand Sun Pharma. Stock futures looking weak are Kotak Bank, Pidilite Inds and SBI Cards.

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

Wonderla Holidays Limited

Wonderla Holidays Limited is a leading player in the Indian amusement park industry and continues to grow and innovate to provide visitors with unforgettable experiences. Wonderla parks have been visited by over 39 million visitors since 2000, making it the most visited amusement park in India.

Wonderla Kochi is spread over approximately 90 acres of landscaped space. Its Wonderla Resort in Bengaluru offers approximately 84 luxury rooms and 30,000 square feet of conference and banquet space, outdoor sports facilities, such as cricket ground, badminton court, and sand volleyball court. The company had acquired land near Chennai for a large amusement park and have already invested Rs114.20 crore in this project, primarily in land and development and is also setting up another park near Bhubaneswar, Odisha.

After the rollercoaster ride during the pandemic years, the company has posted excellent Q1 results and is on track for its best ever performance in the ongoing year. Company plans to open Bhubaneswar and Chennai parks in the future and is considering expansion opportunities offered by various states with long-term land leases and tax benefits. Buy on declines for medium term target price of Rs1250.