FII inflows key to sustenance of further upside in market

Buoyed by Indian markets supportive macroeconomic factors, renewed inflow of funds from FIIs and DIIs, and favourable global cues; the domestic markets continued their upward march to record high levels for the second straight week. On a weekly basis, the BSE Sensex rose 1,159.57 points (2.13 percent) to close at 55,437.29 points, while the NSE Nifty added 290.9 points (1.79 percent) to end at 16,529.10 level. However, in the broader market, the Midcap and Smallcap indices fell one percent and 1.7 percent respectively. Measures taken by BSE to curb excessive price movement in smaller stocks also nudged selling pressure in small and mid-cap stocks. However, they recovered after a late clarification from BSE on limiting its restrictions to penny stocks. FIIs have turned net buyers to the tune of Rs 3,495.24 crore in August, after net selling in the previous four consecutive months.

FII inflows will be crucial for the sustenance of further upside in the market. The policy and regulatory uncertainty in China in recent times has triggered outflow of many FII investors. Many are reportedly looking at India which has a growing middle class and a dynamic workforce. It's very attractive from a longer-term perspective. On the eve of Independence Day, Prime Minister Narendra Modi announced two major schemes -- Gati Shakti Project - an ambitious project for infrastructure building worth ₹100 lakh crore, and the National Hydrogen Mission.

In the absence of any major events, near term direction of the markets will be dictated by macroeconomic data, rupee-dollar movement, crude oil prices and global cues. News of easing of restrictions in some of the severely affected Covid states like Kerala, Maharashtra and others; and pace of vaccination drive would be in focus. After the modest listing of Rolex rings and Glenmark life last week, as many as four companies--Devyani International, Krsnaa Diagnostics, Exxaro Tiles and Windlas Biotech--will debut on exchanges this week. Grey market premiums for many of them have come down thanks to selling in broader markets. Chemplast Sanmar was delisted nearly a decade ago from the stock exchanges at ₹15 a share whereas it has now hit the market with an IPO price of ₹540.The IPO markets are over exuberant and investors need to be cautious.

Heard on the Street: For investors, that 'gut feeling' can be more powerful than they realize. Learn to listen to your gut without being ruled by it. If only financial markets came with traffic signals: indisputable indicators of when it is safe to keep going, when you need to slow down, when you must stop. Imagine how much easier investing would be if you could rely on such green, yellow or red lights. Unfortunately, these unambiguous signals don't exist. Investors fill much of the absence with anecdotes and gut feelings, which can be more powerful than you realize. Such soft indicators can help you make hard decisions, but only if you rely on them in the right ways. Nifty has crossed 16,500 points. Margin debt, borrowed money that brokerage customers use to juice their trading, is up 42 per cent from a year ago. Market data shows punters playing weekly options on indices more than at any time since their inception.

When most financial assets are overvalued by traditional measures and when nightmare and nirvana scenarios are both plausible. The solution is to adopt rules and procedures that enable you to listen to your gut without being ruled by it. Don't just heave a hunk of money at some stock because it's going to the moon. Write down how likely, in a percentage range, you think it is to reach your target price by a certain date. List, in as much factual detail as you can, three reasons why. (If all you're going on is a hunch, then write something like 'I have a gut feeling' three times.) Finally, use your estimate of the probability you are right to determine how much you invest. When the target date arrives, check the outcome against your original forecast and reasoning and see if what you wrote down at the start can teach you anything about how to make your next investment. Did the asset end up near your predicted price roughly when you expected? How much of your rationale was right? If all you went on was intuition, did it turn out to be reliable? A gut check just might keep your gut from hijacking your brain.

It's far too easy for investors to lose perspective. Whenever something big goes wrong, a lot of people panic and sell their investments. Looking at history, the markets recovered from the 2008 financial crisis, the dotcom crash, and even the Great Depression, so they'll probably get through whatever comes next as well.

F&O / SECTOR WATCH

With the NSE Nifty moving into uncharted territory, derivatives segment witnessed heightened activity. Stock-specific action triggered sharp spikes and falls in select stocks unnerving traders. Speculative action is getting concentrated in the weekly option segment of the Nifty and the Bank Nifty.

The current Open Interest in the Nifty is the highest seen since March 2020. In the current series itself, Open Interest has increased almost 50 percent since inception. The Implied Volatility (IV) of Calls closed at 10.48 per cent, while that for Put options closed at 11.13 per cent. The Nifty VIX for the week closed at 12.37 per cent. PCR of OI for the week closed at 1.80. On option front in the Nifty, maximum Put OI was seen at 16,400 followed by 16,300 & 16,500 strikes while maximum Call OI was seen at 16,800 followed by 17,000 and 16,500 strikes. Call writing was seen at 16,800 and 17,000 strikes, while Put writing was seen at 16,400 & 16,500 strikes. After breaching the range of 15,600-15,900, Nifty has now moved to the range of 16,300-16,800 strikes. On option front, in the Bank Nifty, maximum Put OI was seen at 36,000 followed by 35,500 and 35,900 strikes, while maximum Call OI was seen at 36,000 followed by 36,500 and 36,200 strikes. Call writing was seen at 36,200, 36700 and 36,600 strikes, while Put writing was seen at 36,000, 36100 and 36,200 strikes. The weekly option data indicated that the Bank Nifty could see a trading range of 35,500 to 36,500 levels in coming day. Market players expect the sectors that have underperformed to try and play a catch up in the coming week. Surprising rally can't be ruled out in Bank Nifty, FMCG, Consumption and IT counters along with other stock-specific moves. Statement of Revenue Secretary hinting that next GST Council meeting may consider the issue of reducing the higher taxes on automotive sector has given hope to the sector. Buy on declines Tata Motors, M&M, Hero Motocorp, TVS Motors and Maruti. Worst is over for Bharti Tele say company insiders. With hikes in charges, the company expects higher ARPUs from Q2 onwards. Punters predict four figure mark for counter in next few months. Looks like ITC management has realized the market reality and started making right 'noises'. The company's board is concerned about the conglomerate's share price not appreciating despite good financial performance and pay out of more than Rs 50,000 crore as dividend in the past five years. ITC is debt-free, has a transparent dividend distribution policy and 'sum of the parts' valuation is significantly high than the present market cap. Sources close to management indicate creation of an alternative structure for different businesses. Buy for

unexpected target of Rs325-350 in one year. Stock futures looking good are Bharat Forge, Canara Bank, Escorts, HDFC Bank, RIL, M&M and Tata Steel. Stock futures looking weak are Eicher motor, Lupin, Manappuram, Ramco Cements, STAR and Voltas.