Correction Time Ahead: Need to rebalance portfolios

Despite the benchmark indices scaling new highs during the early part of the week ended; spooked by lack of follow up buying, the rising delta variant Covid-19 cases globally and expected US Fed tapering plans markets ended on a weak note. The BSE Sensex was down 107.97 points at 55,329.32 and the NSE Nifty fell 78.60 points to 16,450.50. Broader markets underperformed benchmark indices significantly.

The BSE Midcap index declined 1.14 percent and Smallcap index slipped 2.27 percent. After the sharp outperformance of Mid & Small caps in the last few months, Nifty's valuation premium vs Mid & Small caps has narrowed to just nine per cent (LTA) and three per cent (vs 29 per cent LTA), respectively. Analysts expect this trend to reverse and with cautious view are preferring large caps for near term. Any scale down of retail positions could put further pressure on mid/small caps say market players. Renewed selling from FIIs has dampened the sentiment. FIIs have net sold Rs 4,314.4 crore in the week ended, taking the total net outflow to Rs 819 crore in August.

With FOMC meeting minutes suggesting likely tapering beginning from November 2021 vs a prior expectation of Jan 2022, global equity markets may witness heightened volatility. Slowdown in China's growth could also impede the global recovery. Treating taper talks in the US, potentially higher US bond yields and USD, consensus EPS cuts, recent muted IPO gains negatively impacting retail investor sentiment as negative triggers; one major foreign broking house expects the NSE Nifty to correct to 15,000 in near term. Time to rebalance portfolios say old timers. Nuvoco Vistas Corporation, Aptus Value Housing Finance and Chemplast Sanmar are set to list on the bourses in the coming week. Though Nuvoco Vistas Corporation is country's fifth largest cement maker because of high premium charged in IPO, punters do not expect any listing gains.

Retail-focused housing finance company Aptus Value Housing Finance, and specialty chemical company Chemplast Sanmar will also debut on August 24. After the recent correction in the market and weak listings of Windlass Biotech, CarTrade Tech and others; expect 'rough' weather for new IPOs.

Heard on the Street: In a world full of noise, discipline is investor's greatest asset. First impressions are dangerous. An investor will interpret later information in ways consistent with whatever he happened to learn first, skewing his final judgment. To counteract that, investors should use a checklist with structured questions and the evidence to arrive at correct and reasonable judgment.

Evaluate stocks based on innovation, financial strength, customer loyalty and quality of management. Rank each dimension independently of the others, using a numerical scale, say from 0 to 5. Wherever possible, compare it to industry averages and long-term historical data. That will help keep one good quality from casting a halo over all the others. Ask different people the same question, or even ask yourself the same question at different times. The average of the responses is sure to reduce 'noise' because the decisions by people and organizations are far less consistent and more variable than we think. The opposite of noise is discipline. It's just doing things in a reasoned way, organizing your thinking so it is as intentional as possible. Noise exists mainly across people; individuals look at the same facts and interpret them in divergent ways. It also exists within each of us; a stock you considered risky on Thursday can feel safe on Friday, even if the price didn't change. Every investor needs to take account of noise; otherwise, long-term results will always be hostage to short-term whims and circumstances. In a world full of noise, discipline is investor's greatest asset.

Quote of the week: I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful-Warren Buffett prepared to invest in a down market and to get out in a soaring market, as per the philosophy of Warren Buffett.

F&O / SECTOR WATCH

Ahead of the settlement week, mirroring the weakness in cash market, derivatives segment witnessed sharp down moves in select counters. The Open Interest in the Nifty has moved to its highest levels since March 2020. Long unwinding was seen in Nifty Futures and Short build-up was seen in Bank Nifty futures. On options front, maximum Put OI was seen at 15,500 followed by 16,000 & 16,400 strikes, while maximum Call OI was seen at 16,500 followed by 16,600 & 17,000 strike. Call writing was seen at 16,500 then 17,100 & 16,400 strikes, while Put writing was seen at 15,500, 16,400 then 16,300 strikes. The Implied Volatility (IV) of Calls closed at 11.01 per cent, while that for Put options closed at 12.03 per cent. The Nifty VIX for the week closed at 12.91 per cent. PCR of OI for the week closed at 1.34.

Chartists indicate some negative divergences on secondary oscillators on both the indices, which point towards limited upside in index for upcoming week. However, heightened volatility is likely in markets with sector and specific action. On downside, the 16,400 & 16,250 levels will act as immediate support for Nifty, while any sharp upside would likely to remain capped under 16,600-16,650 zone. Barring FMCG and IT, all other sectors witnessed sharp selling. The correction in the metal prices in the international market and concerns over global economic recovery triggered sharp selling in nearly all the metal counters. Metal index witnessed nearly 7.48 per cent correction. Weakness may persist for more time than expected.

Punters in metal counters say it is now time to 'sell on rallies' metal stocks. Sectoral rotation may help FMCG and Consumption stocks gain much more ground from current levels. Use declines to buy Berger Paints, Marico, Dabur and Britannia. After the recent SC order, Vodafone seems to be on its way to the ICU. Speculation of takeover by government and merger with BSNL/MTNL is doing rounds. Mergers should be driven by synergies and not by desperation to survive say industry observers. The investment surge by both new and established automakers in the electric vehicle market is a bonanza for factory equipment manufacturers that supply the highly automated picks and shovels for the prospectors in the EV gold rush. Keep an eye on companies like Bharat Forge and others.

Stock futures looking good are Asian Paints, Bata India, Dabur, Petronet, Pidilite and Mindtree. Stock futures looking weak are Aurobindo, Cipla, NTPC, REC and TVS Motors.

STOCK PICKS

Fortis Healthcare Limited is an integrated healthcare delivery service provider. The company is engaged in establishing, maintaining, operating, running, managing or administering hospitals, medicare, healthcare, diagnostic, health aids and research centers. The company operates through the Clinical Establishments Division and the Medical Services Division. The Clinical Establishments Division owns, maintains and operates clinical establishments (being fully air conditioned institutions established, and specifically customized and duly fitted with all fixtures, fittings, certain medical equipment and infrastructure required for running and operating the hospitals), as well as provides services under outpatient division and radio-diagnostic services.

The Medical Services Division undertakes the business of running the hospital operations, including in-patient services and emergency services. Digital initiatives have enabled the Company to further increase its patient footfalls. Tele/ video consultations increased 3x in Q1 FY22 over Q4 FY21 with Fortis facilities conducting over 50,000 tele/ video consults in the quarter.

Revenues from digital channels such as websites, My Fortis app and online campaigns increased 2.5x over the corresponding previous quarter. Flagship facility in Gurugram: Fortis Memorial Research Institute (FMRI), was ranked No 23 and the only Indian hospital to be listed in Newsweek's top 25 'World's Best Smart Hospitals 2021'. The company's diagnostic subsidiary SRL recorded highest ever quarterly revenues in the last quarter. SRL completed its acquisition of the balance 50 per cent stake in the DDRC SRL JV in April 2021. The acquisition fortifies SRL's leadership in the Kerala market and consolidates its position as the second largest diagnostics chain in the country (by revenue). The company operates its healthcare delivery services in India, Dubai, Mauritius and Sri Lanka. Infusion of Rs4lakhs at a price of Rs170 per equity share into the Company by Northern TK Venture Pte Ltd Singapore (NTK) has strengthened the finances of the company. Buy between Rs265 -275 for medium term target of Rs400 (in six months) and Rs475 (in 12 months). Keep a stop loss of Rs250 for positional trades. Risk /Reward ratio is 1:6.

Shreyas Shipping & Logistics Limited (Shreyas), part of Transworld Group of Companies, is a pioneer and leader in domestic and EXIM transhipment business servicing most container ports in India. The company holds 50 per cent market share in the domestic cargo and is the market leader in this business segment. During the last year the company also tendered additional cargo from PSUs, namely IOCL, IFFCO and FCI and aligned services for providing additional focus on return leg from East to West and South to North.

The Company caters to ports like Mundra, Kandla, Pipavav, Cochin, Tuticorin, Mangalore, Krishnapatnam, Chennai, Paradip, Hazira and Kolkata which handle majority of the traffic growth in India. Further, the Company has added Non-containerized Cargo (Break Bulk) and Chartering Businesses in the past two years to diversify its business mix. Shreyas has the largest fleet strength amongst peers. The company owns and operates a fleet of 12 vessels with a total capacity of 22,794 TEUs, 2,44,919 GRT & 3,12,016 MT deadweight tonnage and operates across most Indian container ports. Renewed interest in the stock was seen after excellent Q1 performance. Buy on dips for target price of Rs400 plus in short term.