Caution alert for investors on negative global cues

With giant swings across currencies and stocks around the world and commodities prices soaring the most in decades; stock markets across the globe recorded their biggest one-week decline since March 2020 as Russia's military campaign in Ukraine intensified. Geopolitics was the only

factor that continued to hold the global equity markets at ransom. It continued to fracture the sentiments of the markets and India was no exception. In the truncated week, Indian Markets extended the losing streak to fourth consecutive week. The BSE Sensex fell 1,524.71 points (2.72 percent) to end at 54,333.81, while the Nifty shed 413 points (2.47 percent) to end at 16,245.4 levels. Foreign institutional investors (FIIs) sold equities worth of Rs22,563.08 crore and domestic institutional investors (DIIs) bought equities worth of Rs16,742.75 crore last week. In just three sessions in March, FIIs have withdrawn a net Rs 14,721 crore from the equity market. This is on top of around Rs70,000 crore in the previous two months of the current calendar year. Analysts fear they will continue to sell mercilessly, and advise investors to be cautious. Economy watchers are speculating over impact of rising commodity prices on fiscal numbers.

Moreover, rising wheat, palm oil, and coal will start hitting the common man hard in the coming days. This may also lead to monetary tightening, which has become the biggest worry for investors. Another key event to watch out for would be the results related to five states Assembly elections including Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur. The results of all these elections will be announced on March 10. Market watchers expect a bit of volatility, but that would be temporary, as the market generally focuses more on national elections rather than states.

Higher crude oil-and-gas prices are the key inflation risk for the economy and that higher commodity prices threaten economic growth. Rising crude oil prices can lower GDP growth. Investors remained focused on the sharp rise in oil prices for much of the week. Gold prices have risen to the highest level since 2020 showcasing investor's inclination to traditionally safer investments. Key factors that may steer the markets in coming week are macro-economic data, international crude oil prices coupled with possible hike in domestic petro product prices by OMCs, outcome of five state assembly elections and Ukraine War.

Contrarian Investing: Buy When There's Blood in the Streets The worse off the market is, the better the opportunities are to profit. That's seemingly the credo for contrarian investing. Contrarian investing is a strategy of going against prevailing market trends or sentiment. "The idea is that markets are subject to herding behaviour augmented by fear and greed, making markets periodically over- and under-priced. Be fearful when others are greedy, and greedy when others are fearful," said Warren Buffett, a phrase that encapsulates the contrarian philosophy.

Being a contrarian can be rewarding, but it is often a risky strategy that may take a long period of time to pay off. Contrarians, as the name implies, try to do the opposite of the crowd. They get excited when an otherwise good company has a sharp, undeserved drop in the share price. They swim against the current and assume the market is usually wrong at both its extreme lows and highs. The more prices swing, the more misguided they believe the rest of the market to be.

A contrarian investor believes the people who say the market is going up do so only when they are fully invested and have no further purchasing power. At this point, the market is at a peak and must go down. When people predict a downturn, they have already sold out, at which point the market can only go up. For this reason, a contrarian mindset is great for sussing out whether or not a particular stock has actually bottomed out. Successful contrarian investors have historically made their best investments during times of market turmoil.

After the September 11 terrorist attacks, the world stopped flying for a while. Suppose that at this time, you had made an investment in Boeing (BA), one of the world's largest builders of commercial aircraft. Boeing's stock didn't bottom until about a year after September 11, but from there, it rose more than four times in value over the next five years. Clearly, although September 11th soured market sentiment about the airline industry for quite some time, those who did their research and were willing to bet that Boeing would survive were well rewarded.

While the most famous contrarian investors put big money on the line, swam against the current of common opinion and came out on top, they also did some serious research to ensure that the crowd was indeed wrong. So, when a stock takes a nosedive, this doesn't prompt a contrarian investor to put in an immediate buy order, but to find out what has driven the stock down, and whether the drop in price is justified. Figuring out which distressed stocks to buy and selling them once the company recovers are the major play for contrarian investors. This can lead to securities returning gains much higher than usual. However, being too optimistic about hyped stocks can have the opposite effect.

F&O / SECTOR WATCH

On the back of sustained weakness in cash markets and the volatility around the globe; derivatives segment continued to witness brisk trading volumes. On the sectoral front, weakness was seen in auto, financials, telecom and realty. On the other hand, tracking global spurt in commodity prices, the Metal index rose eight percent and oil & gas added nearly five percent. Nifty ended the week with cut off more than two per cent. Bank Nifty witnessed even worst as the index ended the week with cut off more than five per cent.

The options data indicates that the Nifty could see a wider trading range of 15,500 to 16,700 in the coming sessions. Maximum Call Open Interest was seen at 17,000 strike followed by 16,700 and 16,800 strikes with Call writing at 17,000 strike then 16,300 and 16,700 strikes. The maximum Put Open Interest was witnessed at 16,000 strike followed by 15,500 and 16,300 strikes with the Put writing at 16,300 strike then 16,200 and 15,500 strikes. Option writers were seen adding open interest in far strikes which points towards more volatility in upcoming sessions.

Implied Volatility (IV) of Calls closed at 26.68 per cent, while that for Put options closed at 27.52. The Nifty VIX for the week closed at 28.16 per cent, which was higher than the previous week. PCR of OI for the week closed at 1.62. Markets offer a lot of shorting opportunities but the safer method to deal with such setups would be to focus on the badly beaten sectors that show more chances of a sharp technical pullback.

Over the coming days, some badly beaten auto, financial, and pharma stocks may see a pullback. PSE and oil and gas space will continue to do well. Avoid aggressive trading and continue staying light on exposures. Stock futures looking good are Balrampur Chini, Coforge, Jindal Steel, Kotak Bank, Indian Hotels and Power Grid. Stock futures looking weak are Biocon, Dr Reddy, Pidilite, SRF, Tata Consumer and Voltas.

(The author is a stock market expert. He is former vice-chairman of AP Planning Board )

STOCK PICKS

Lokesh Machines Limited ranks amongst the Top-5 machine tool manufacturers in India. The company is a leader in cam & crank borers, fine borers & finish milling machines. It is also engaged in automobile sector and in the manufacturing of auto components, such as Cylinder Blocks, Cylinder Heads and Connecting Rods. The company offers products, including General Purpose Machines, Special Purpose Machines and Job work charges. The company operates through two segments: Machine division and Components division.

The company manufactures special purpose machines, including simplex and duplex milling machines, multi drilling machines, gun drilling machines, fine boring machines, mini transfer lines and semi-automated equipment; general purpose machines, including computerized numerical control (CNC) lathes and vertical machining centers; auto components, including machined engine cylinder blocks and cylinder heads, and others. It also offers cam and crank borers, fine borers and finish milling machines. Lokesh Machines has collaboration with M/s Tongtai-Taiwan for High Speed Drill/ Tap Centers, Horizontal Machining Centers, world leader in that segment.

The company also has tied up with EMCO Group, one of Europe's leading producers of machine tools. Who's Who of the Indian engineering industry – Tata Motors, Bharat Forge, Bajaj, Eicher, Volvo and others are the customers of the company. It exports CNC machines to Japan, Germany, Netherlands, Italy, Turkey, China and the Middle East countries. Presently the company is operating from five locations in Hyderabad and Pune. Why we are recommending

l The CNC machines division is expected to post substantial growth with improving market conditions. While the current capacity utilization is at its peak, the company is making significant improvements in productivity improvement and further increase in capacity utilization thus squeezing the assets to the maximum. The SPM order book reflects a reasonable growth. Almost all the orders are from the existing customers only for capacity expansion and not for any new products.

l The latest achievement is the supply of a complete range of Special Purpose Machines to machine EURO VI compliant Engine Cylinder Blocks & Heads to M/s Volvo Eicher Commercial Vehicles Ltd.

l The company has developed ASMI series of guns (similar to Uzi series guns of Israel). This major breakthrough will catapult the company to big league of defence space.

l Replacement value of the company together with the appreciation of land holdings is above Rs300 crores. Current market capitalisation (mcap) of the company is just around Rs70 crores.

Buy for short term target of Rs100 (in 4 to 6 months) and medium term target of Rs175 (in 9 to 12 months). In the event of deep correction in market, stop loss should be at Rs60.