Crude oil prices, Q1 earnings to set the tone for mkts

After touching lifetime highs, bouts of 'Acrophobia' (fear of heights), lack of follow-up buying, jitters over Q1 earnings and none too enthusiastic response to the latest stimulus package of GoI have pushed markets into red during the week ended July 2, 2021. The BSE Sensex and the NSE Nifty closed 0.8 percent lower each for the week ended, compared to a 0.2 percent fall seen in the Midcap index, and a 2.2 percent gain seen in the Smallcap index.

Remarkable gains in some small-cap stocks triggered fears of 'irrational exuberance' puncturing the rally. The market is showing some signs of fatigue around these levels. Tread with caution say old timers. The trading range remained narrow for the benchmark indices. It is pertinent to observe that the FIIs have been net sellers for the last three months selling equities worth of Rs12,039.43 crore, Rs6,015.34 crore and Rs25.89 crore respectively. Decline in Covid cases and vaccination drive, expectations of increased consumer spending and normal monsoon rainfall have bolstered the sentiment. However, the global situation on oil prices is really worrying say economy observers. The consistent increase in fuel prices to

development in the global oil markets where both product and crude price have been firming up for the past couple of months on demand rise amidst the slowing of pandemic. However, a closer look at the fuel retail prices in India gives a picture that it is the high level of taxes that is keeping fuel rates higher even in times when global oil prices are firm. To reduce fuel-induced inflation, it is becoming imperative that GoI take steps in this regard. The proposed e-Commerce rules attempt to micromanage the operations of market players, which will stymie the growth of e-Commerce, a sunrise sector. The government must limit its intervention in the markets to addressing market failures, regulating unfair trade practices and protecting consumer interest through the regulators say industry bigwigs.

The near-term direction of the markets will be dictated by Q1 earnings, progress of monsoon, international crude oil prices, macroeconomic data and global cues. After decent listing gains in Dodla Dairy and KIMS, the two IPO's open for public subscription-GR Infraprojects and Clean Science Technology are expected to do very well. Grey market premium for these issues suggest there is good demand for the shares among the investors.

Heard on the Street: Indian stock market is as calm as can be on the surface, while churning underneath more than it has in decades. The NSE Nifty and the BSE Sensex are so quiet it is almost disconcerting. The index hasn't had a 5% or 10% meaningful correction based on closing prices since the end of March; no wonder the new day traders who started buying shares in lockdown think the market only goes up. Yet, look at the performance of types of stocks, and they have been swinging around much more than they usually do. Investors have been switching their bets between industries at a pace not seen outside of crises; March brought the biggest gap between the best and worst-performing sectors since 2002. The link between moves in growth stocks and cheap value stocks is the weakest—measured by the correlation—since 1995; investors are using them as proxies for betting for or against economic recovery. Meanwhile, big and small stocks last moved so independently of each other during the dot-com bubble of 2000, never a reassuring sign. Many think this is another aspect of TINA: There Is No Alternative to stocks. With other asset classes offering meagre or zero return, stocks offer the best hope of gains. Investors who would previously have shifted money from stocks to bonds or vice versa now just switch from one sort of stock to another—so falls in one are offset by gains in another. There is no guarantee that it continues this way, of course.

This time the most obvious threat to stocks is the US Federal Reserve, rather than the market's overvaluation. If the Fed raises rates, cash and bonds suddenly look much more attractive, and the TINA justification for buying extraordinarily expensive stocks is undermined. It isn't something many think is likely soon, but the number one threat that could bring the turmoil from the depths to the surface of this market is the Fed.

Quote of the week: "You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets-- Peter Lynch

F&O / SECTOR WATCH

Mirroring the sluggish trend in the cash market, derivative segment witnessed lack lustre trades. Ahead of Q1 numbers, stock specific action was in forefront. In the options segment, maximum Put OI is at 15500 followed by 15000 strike while maximum Call OI is at 16000 followed by 16500 strike. Call writing is seen at 16100 then 16200 strike while Put writing is seen at 15000 then 15500 strike. Chartists say that the Nifty has to hold above 15700 level to witness an up move towards 15850 and 15900 levels. Expect strong support at 15600 and 15500 levels. The Option data suggests an immediate trading range in between 15600 to 15900 zones. Bank Nifty may take support at its 50 days exponential moving average which is placed around 34500 levels. The Implied Volatility (IV) of calls closed at 11.96 % while that for put options closed at 20.42%.

The Nifty VIX for the week closed at 12.84%. PCR of OI for the week closed at 1.27. Techies warn that the market is not only showing classical distribution at higher levels, but appears to be showing ample signs of a likely corrective move.

Stock futures looking good are Axis Bank, Biocon, Cummins India, GAIL, PI Inds, Sun Pharma and Zee Entertainment. Stock futures looking weak are AU Bank, Kotak Bank, Tata Steel, TVS Motors and UPL.