Counter Inflation measures to set the tone for mkts

Following disappointing results from IT major Infosys and HDFC Bank, hawkish statement from US Fed hinting a 50-bps rate hike in next month policy meeting, continued woes from Russia-Ukraine war and volatility in global crude oil prices, it was yet another week of losses for the market.

BSE Sensex corrected 1,142 points or 1.96 percent to close the week at 57,197, and NSE Nifty fell 304 points or 1.74 percent to 17,172. However, the broader markets smartly outpaced benchmark indices with both the Nifty Midcap and Smallcap 100 index indices logging gains of 3.6 percent and 2.7 percent. Sectorally, barring select stocks from auto, energy and oil and gas segment nearly all other sectors witnessed sharp losses. Nifty IT lost 5.6 percent followed by the Nifty Media and Nifty PSU Bank losing 4 percent. FIIs sold aggressively equities worth Rs 18,443.81 crore, while DIIs bought shares worth Rs 14,394.37 crore. The government is likely to dilute 3.5 percent of its stake in Life Insurance Corporation of India in the upcoming IPO, instead of 5 percent by seeking Rs 21,000 crore for the revised holding on the block, targeting a valuation of Rs6 trillion. After 11 successive weeks of decline, Covid-19 cases in India surged again this week, rising by 35 per cent over the previous seven days numbers, on the back of a spike in infections in the contiguous states of Delhi, Haryana and Uttar Pradesh. Need to watch developments on this front carefully say watchers. Russia's invasion of Ukraine has thrown the trade of sunflower oil into chaos and is squeezing already tight supplies of other vegetable oils used in food, bio fuels and personal care products. Now, with Indonesia set to ban exports of cooking oil in the wake of a local shortage and soaring prices, adding to a raft of crop protectionism around the world; intensifies worries about food costs and shortages. Inflation would be dictating the direction of equity markets across the globe.

Ahead of the F&O settlement week, apart from continued focus on the Ukraine war, Covid situation in China and global cues; earnings will continue to trigger sharp stock specific swings. Coming week would witness results from several large-cap and also from the mid-cap and the small-cap segments. Bajaj Finance, HDFC Life, Bajaj Auto, HDFC AMC, HUL, Axis Bank, Bajaj Finserv, SBI Life, Vedanta, InduSind Bank, Maruti, Ultratech Cement, Wipro, KPIT Technologies, Macrotech Developers, Aditya Birla Sun Life AMC, AU Small Finance Bank, Nippon Life India AMC, UBL, UTI AMC, Indian Hotels, Persistent Systems, Syngene, Ambuja Cements, Biocon, IndiaMart, Laurus Labs, MFSL, Mphasis, HFCL, L&T Finance Holdings, SBI Cards, Star Health, Tanla Platforms, and Tata Chemicals will release their numbers next week.

Listening Post: Worries about slowing corporate earnings and the US Federal Reserve's plans to rapidly raise interest rates dragged the markets across the world during the week ended. Bond yields extended their gains, rising for three consecutive weeks. Investors this week parsed quarterly financial results from a range of firms in search of clues about the health of the economy, the consumer outlook and companies' ability to cope with inflation. Of the companies that have reported so far, only about 80 per cent have beat analyst expectations. Downbeat reports from IT and input pressure in the next two quarters seen across the board – from automobiles to FMCG, consumer durables or even pharmaceuticals have dampened the sentiment. Usually when the economy's slowing down, or there is a perception it'll slow down, there are obvious sectors to hide in. Those traditional sectors aren't as safe from an earnings basis as they are historically because they still are going to have negative impacts from inflation. Healthcare stocks are often considered defensive, with money managers betting that consumers will pay medical bills before making discretionary purchases. Concerns about inflation and the pace of monetary tightening by the Fed also remained at the forefront of investors' minds this week.

In the week ended, Fed Chairman Jerome Powell gave investors a clear signal that the central bank is ready to tighten monetary policy more quickly and indicated that it was likely to raise interest rates by a half-percentage point at its meeting in May. In India also hike in interest rates is expected in June itself. A rate increase next month, following the Fed's quarter percentage point increase in March, would mark the first time since 2006 that the central bank increased its policy rate at back-to-back meetings. US Fed's comments injected fresh volatility into a stock market that has been whipsawed this year by the war in Ukraine, soaring inflation and rising Covid-19 cases in China. The market is finally internalizing and factoring in the reality that the Central Bank's across the globe really mean what they say and they are not going to back down. Somebody had a saying, and it's pretty good: 'You don't fight the RBI when the RBI is fighting inflation.' It's a tricky tightrope that central-bank policy makers have to tread right now. They need to put a lid on that boiling pot of inflation, but they don't want steam to be driven out of the economy completely. Many traders are now worried that the RBI's tightening cycle could tip the economy into a slowdown. The market is finally internalizing and factoring in this reality.

Quote of the week: The stock market is filled with individuals who know the price of everything, but the value of nothing

— Phillip Fisher

That is another testament to the fact that investing without an education and research will ultimately lead to regrettable investment decisions. Research is much more than just listening to popular opinion.

F&O / SECTOR WATCH

Mirroring the action in the cash market, derivative segment continued to witness brisk volumes. On option front, Maximum Call Open Interest (OI) was seen at 18,000 strike followed by 17,500 & 17,400 strikes, with Call writing at 18,000, 17,400. Maximum Put OI witnessed at 17,000 strike followed by 16,000 and 16,500 strikes, with Put writing at 17,000 strike. Going ahead, 17,200 level should be crucial for the Nifty to witness a recovery towards VWAP (volume-weighted average price) levels of 17,600. With overall correction in markets, call writers were seen aggressive and they had added hefty open interest as compared to Put writers. Implied Volatility (IV) of Calls closed at 16.85 per cent while that for put options, it closed at 17.89. The Nifty VIX for the week closed at 17.85 per cent PCR of OI for the week closed at 0.94 lower than the previous week, which indicates more call writing than put writing. Expect Nifty to trade in the range of 16800-17400 levels while Bank Nifty could sail in zone of 35200 - 36900 range. Savvy market players advise not to trade aggressively till the trend becomes clear. One needs to be selective when it comes to stock-centric approach and should follow strict stop losses for momentum bets. Weekend results of ICICI Bank were better than expectations and may provide some fillip to the beleaguered sector.

During the later part of the coming week, auto stocks led by Tata Motors, Maruti Suzuki, Hero Motocorp, TVS Motor Company, Escorts, Eicher Motors and M&M may be in focus ahead of monthly sales numbers. Reliance decision to recall $3.4-billion Future assets deal after secured creditors vote against scheme is being viewed positively by the investors. Coupled with this decision and hopes of sharp improvement in performance with higher GRMs, stock price is poised to cross Rs 3000 mark.

The government may take a fresh look at BPCL privatisation, including revising the terms of sale like issues in terms of consortium formation, geopolitical situation and energy transition aspects. Keep an eye on PSU stocks for steady gains in these uncertain times. In Stock futures looking good are ABFRL, Brigade Enterprises, Britannia, BPCL, Coal India, Dabur, L&T Finance and Navin Flourine. Stock futures looking weak are AU Bank, Hindalco, HDFC Bank, STAR, MFSL, Polycab and UBL.

STOCK PICKS

Nirmitee Robotics India Limited

Nirmitee Robotics India Limited is the world's leading HVAC Air Duct Cleaning Company. The company is equipped and experienced to handle all kinds HVAC Air Duct Cleaning and services Offices, Hotels, Convention Centers, Hospitals, Aircraft, Train and Bus Coaches. Also provides specialized services in Buildings that house Sensitive Equipment, like Data centers and Operation Theatres. The company uses patented Air Duct Inspection Robots to survey the HVAC Air Ducts, and then use a variety of its patented HVAC Duct Cleaning Robots to Scrub, Scrape, Vacuum, Clean and Sterilize your HVAC Air Ducts. With offices in India, Hong Kong, and Dubai, the company serves customers around the world. The company has fixed 26th April, 2022 as the Record Date for the purpose of determining entitlement/ eligibility of Shareholders (Members) to receive the Bonus Shares in the ratio of 5:1 i.e. 5 (Five) Bonus Shares for every 1 (One) fully paid-up Equity Shares of Rs 10/- (Rupees Ten) each held by the member. Market circles expect improvement in liquidity after the bonus issue. Dark horse speculative bet for post Bonus target price of Rs300.

OnMobile Limited

OnMobile Limited provides mobile entertainment products & solutions such as Tones and Videos & Editorial to telecom operators and media companies. Gaming and mobile entertainment business is attracting the new generation of investors. Outside this traditional core, the company is focused on building cutting-edge Mobile Gaming products such as ONMO & Challenges Arena which it takes to market through B2B and D2C channels. Launched real money gaming battles and tournaments and also launched on Chingari short video app. The company has completed the 100 per cent acquisition of rob0, through its subsidiary OnMobile Global Solutions Canada Ltd. rob0 offers best-in-class patent pending Vision AI technology. The platform gathers, analyses and provides smart insights that help to clearly understand user behaviour, optimise gameplay and increase player retention. Based on current deployments, OnMobile has over 80 million monthly users across the globe and has an addressable base of more than 1.68 billion mobile users and over 100 million active subscribers across several geographies based on current deployments. It is pertinent to observe that after the buyback at Rs28 in the year 2020, the stock has been five bagger. Buy on declines for target price of Rs 275.

7Seas Entertainment Limited is an independent, IP-based game development company. The company is also developing Metaverse, games which have a treasure hunt-action theme and unique game play features. Play to earn is emerging as an attractive business model that provides win-win entertainment and money-making platforms for players and companies in the gaming industry. The company is all set to release games of the new model for the next generation in the upcoming season. Stay invested for target price of Rs 40 in medium term.