DII sell-off offsetting FII buying support

After logging gains for three weeks in a row, the Indian equities took a breather during the week ended May 19. Despite the positive news flow like record GST collection, improved PMI numbers, trade deficit narrowing to near two-year lows, and sharp softening in headline and core inflation; NSE Nifty could not sustain above 18,400 points.

There has been a slight divergence between the Indian and global markets. BSE Sensex fell 298.22 points or 0.48 percent to end the week at 61,729.68, and the Nifty shed 111.4 points or 0.60 percent to close at 18,203.40. For the week, the Mid-cap index ended on flat note and the Small-cap index rose 0.4 percent. FIIs bought shares worth Rs4,097 crore. Total FII inflow for May so far stands at Rs17,376 crore.

However, FII buying is getting neutralised by DII selling. The six per cent rally in Nifty from the March lows has been used as a profit booking opportunity by DIIs and traders. In a surprising move, the Reserve Bank of India (RBI) on Friday announced the decision to withdraw the circulation of Rs 2,000 denomination notes by September 30. Unlike the time during demonetisation in 2016, the withdrawal of the Rs2,000 denomination currency notes is not expected to have any significant impact on the economy and markets, according to observers.

Given the lower circulation of the currency, and the efforts taken by the government and banks to strengthen the digital payment infrastructure, the impact on the economy as a whole will be minimal. However, analysts see this move having a positive impact on banks and expect the deposit accretion of banks to improve marginally in the near term easing the pressure on deposit rate hikes and also resulting in moderation in short-term interest rates. Near-term direction of the markets will be driven by developments regarding the US debt ceiling impasse, FOMC minutes of the May policy, last leg of Q4 earnings, FII & DII activity, international crude oil prices and rupee-dollar movement. Going ahead, markets will also keep a tab on monsoon movement. In the latest update, the IMD expects the onset of monsoon over Kerala is likely to be slightly delayed. One needs to keep a stock-centric approach for better trading opportunities and stay abreast of global developments.

Listening Post: Why You Keep Chasing the Wrong Stock Market Trying to make up for stock market losses can be costly, impulsive and misguided, and the Nifty or the Sensex are not necessarily your best metrics. If you’re like most investors, you can probably guess roughly where the Nifty or the Sensex are at a given moment, but that doesn’t mean you know how well the stock market is doing. That can obscure your view of your own performance and distort your decisions. This year’s stock market is split in two. One consists of a few big companies, and they are booming. The other is everything else, and it’s been stinking up the joint. In 2023, the Sensex and the Nifty are only marginally up, the broader market comprising Midcap and Smallcap stocks gained significantly, not including reinvested dividends. That’s the widest year-to-date performance gap between the two indexes on record in several years. You might be tempted to take on extra risk, to try to catch up to the hottest players in the stock market. It’s not hard to see why. The composition of stocks in the Sensex and the Nifty are to blame for its underperformance. Their stocks aren’t scaled by their total value in the stock market, with some bigger companies getting greater weight and some stocks with higher share prices dominating. Post announcement of merger of HDFC and HDFC Bank, the impact on indices was visible to everyone. Fixating on your underperformance may lead to what psychologists call loss chasing, or taking bigger, more-frequent and more-impulsive risks in the effort to get back to break-even. That doesn’t necessarily mean buying more of whatever’s gone down the most. Often, it means buying whatever you think can go up the most — even (or especially) if it’s a long shot. Neuroscience experiments have shown that choosing to quit chasing your losses can fire up the same part of the brain that registers pain and disgust. When you hunt what you hope will be gains, it hurts to admit that what you’re likely to catch is more losses. No wonder it can be hard to stop this behavior — even if you realize your persistent bad bets are putting you deeper in the hole. Others may fly to what feels like safety. Investors have poured money into SIPs, Bank FDs since then. That’s a bet with a little bit of upside if the RBI begins cutting interest rates soon–and plenty of downside if it doesn’t. Like so much of investing, making peace with your losses is a mind game. How you define a loss depends on your reference point: Is the value of your investment down from its peak price? From the end of 2022? From the lows of March 2020? From five years ago? From 10 years ago? From what you originally paid for it? A loss that seems severe over one measurement period may feel lighter when you look at it over a different horizon; the farther back you measure, the better. You might not be so far behind the market once you change your reference point. Before you start loss chasing, be sure to ask whether what you have is a loss at all.

Quote of the week: Know what you own, and know why you own it

— Peter Lynch

Do your homework before making a decision. Once you've made a decision, make sure to re-evaluate your portfolio on a timely basis. A wise holding today may not be a wise holding in the future.

F&O / SECTOR WATCH

Heightened volatility and broader trading range of 400 points in the Nifty kept the traders on the edge during the week ended. In the options segment, the maximum Call Open Interest (OI) was seen at 18,200 strike followed by 18,400 strike; the maximum Put OI was seen at 18,200 strike followed by 18,000 strike. Pile up of options at 18,200 strike makes it the pain point for both Call and Put writers. Above the 18,200 level, the Nifty can reattempt to touch 18,400 level. Failure to sustain above 18,200 points, the Nifty can slide towards 18,000 level. Bank Nifty is also struggling to catch up with momentum above the 44,000 mark. The Implied Volatility (IV) of Calls closed at 11.03 per cent, while that for Put options closed at 11.97 per cent. The Nifty VIX for the week closed at 12.80 per cent. The PCR of OI for the week closed at 0.74. Among sectors, the Nifty Pharma index fell three per cent, the Media index down two per cent, and the Oil & Gas index down 1.8 percent, while the Nifty Realty and the Information Technology indices gained one per cent each. Start of the coming week would see investors initially digest the RBI’s move to withdraw circulation of Rs2,000 bank notes. The last of the Q4 results are expected in the coming week. This could impact the individual stock prices. Major companies which are in stock futures like BPCL, Ashok Leyland, NMDC, Hindalco, Oil India, National Aluminium Co, Zee Entertainment, Vodafone Idea, BHEL, Info Edge, Shree Cement, Aditya Birla Fashion and Retail, Page Industries, Biocon, Dixon Technologies, Amara Raja Batteries ONGC and Sun Pharma will be declaring their results in the coming week. Bharti Airtel and Jio have reported marginal to flat ARPU growth for the fourth quarter of 2022-23.Telecom operators Reliance Jio, Bharti Airtel and Vodafone Idea (Vi) are taking measures, such as blocking incoming calls once the time period of the pack expires and restricting the number of data top-ups after voice validity of a plan is over, to increase their average revenue per user (ARPU) without having to raise tariffs. Stay invested in the sector. Stock futures looking good are Bharti Airtel, Coforge, Exide Inds, HUL, InduSind Bank Persistent Systems and Ramco Cements. Stock futures looking weak are Alkem, Jindal Steel, Hindalco, IndiaMart, Granules, Metropolis and PI Inds.

-The author is a senior maket

analyst and former vice- chairman, Andhra Pradesh State

Planning Board