Focus on sector-specific/stock-specific moves

Weighed down by the hawkish commentary from Federal Reserve Chairman Jerome Powell, stating more rake hikes lying ahead, surprise rate hike by the Bank of England, sluggish progress of monsoon, bout of Vertigo at historic highs and aggressive profit booking by some market players; the domestic markets snapped four weeks of gaining momentum during the week ended. BSE Sensex fell 0.63 per cent or 405.21 points to finish at 62,979.37pts, and NSE Nifty shed 0.85 percent or 160.5 points to end at 18,665.50pts. In the broader market, BSE Mid-cap Index declined 1.2 percent and BSE Small-cap index shed one percent. After alternate bouts of buying and selling, FIIs’ net buying was only Rs1.5 crore in the passing week, but on the monthly basis, they continued buying for fourth straight month, pouring in nearly Rs7,000 crore. Sectors attracting FII attention are financials, autos and capital goods. Continued selling from FIIs was seen in IT and metals.

Market watchers are closely tracking the southwest monsoon progress as it is critical for the RBI’s inflation outlook and also for the Indian economy. RBI policy minutes also raised concerns over the delayed monsoon. After initial delay, conditions seem favourable for southwest monsoon, which has progressed swiftly covering several states. The India is expected to get normal rainfall during the southwest monsoon season despite the evolving El Nino conditions according to reports of the IMD. International prices for key food items like rice and sugar are at elevated levels, and adverse climate events have the potential to quickly change the direction of the inflation trajectory.

The IPO market is gathering steam again, with three main board initial public offerings (IPOs) and four from the small and medium enterprises (SME) segment set to open in the coming week. The seven issues are expected to raise a total of over Rs1,600 crore. The SME issues are slated to mop up Rs110 crore. The three main board IPO’s are drone manufacturing company IdeaForge Technology, Cyient DLM - the subsidiary of IT services firm Cyient and construction and development company PKH Ventures . In the Small and Medium Enterprises (SMEs) segment, conveyor belt manufacturer Pentagon Rubber, PET stretch blow moulding machine manufacturer and exporter Global Pet Industries, software development services and solutions providers Tridhya Tech and Synoptics Technologies are approaching the markets. The market will remain shut on June 28 for Bakri Id.

Listening Post: How to Face Up to Buying the Dips

Buying stocks as they drop is harder than it sounds. Here’s one strategy that might help keep you on course in turbulent times. All investors are the prisoners of their past, and that shapes how they face the future. Until the past few weeks, stocks had resembled a perpetual moneymaking machine, rising smoothly for last two months. From last week of March 2023 till last week, several mid-cap and small-cap stocks gained more than 100 per cent. So, it’s understandable if you think that nearly 20 per cent collapse from current levels is just a blip. Stocks will soon resume their smooth upward course, right? I hope so. For all we know, the coming months can be long slogs when stocks kept jolting up and down, but finished essentially where they started. In that case, you will need new weapons in your psychological arsenal. Years on, end of poor stock returns would torment anyone who isn’t prepared for a long grind.

One weapon to consider is called value averaging. It’s like buying the dips—purchasing more stocks as prices drop—on steroids. At its heart, this technique combines two basic ideas: rupee-cost averaging (putting money to work automatically every month or quarter) and rebalancing (selling some of your winners and buying some of your losers). In value averaging, you set a target amount by which you want your account to grow each period. Say you want to end each month with Rs10,000 more than you started with. In periods when stocks fall, you have to add enough to your holdings to hit the target you’ve set. In a rising market, you’d buy less than Rs10,000—and even sell some, if stock prices go through the roof. Most investors say they intend to buy and hold—but many end up buying high and selling low instead. Investors who use value averaging have pre-committed to bury their demons—the greed demon that makes you buy high and the fear demon that makes you sell low. The strategy does better when volatility is high and worse when stocks move smoothly up or down.

In a long, steady market, there’s nothing better than buy-and-hold, just sitting on it. If someone really can take the appropriate amount, put it in stocks and then let it ride, rebalancing from time to time, but otherwise holding, I’m not going to tell them value averaging is any better. But in practice not many people can do that. Then again, if you don’t have the discipline to buy and hold, you might not have the extra discipline to buy even more in a down market. Few things are harder than buying more when markets fall. That’s why discipline is an investing superpower. Value averaging could help some people stay the course—but it takes work, and it won’t work all the time. Then again, in markets nothing works all the time.

Quote of the week: Courage taught me no matter how bad a crisis gets, any sound investment will eventually pay off

— Carlos Slim Helu

Don’t despair amid the inevitable setbacks that all investors face, especially during a crisis in the market. If the reasoning behind the investment was sound, stick with it, and it should eventually turn around.

F&O/ SECTOR WATCH

Ahead of the settlement week, derivatives segment witnessed significant volatility. Nifty and Bank Nifty closed below the psychological levels of 18,700 and 44,000. The Nifty now has an immediate support at 20DEMA trading near 18,641pts, if breached can slip to 18,400 level. The maximum Call Open Interest (OI) was is at 18,800 strike, followed by 19,000 strike and 18,900 strike. The maximum Put OI is at 18,000 strike, followed by 18,800 and 18,700 strikes. Option data indicated that 18,800-18,500 is expected to be remain crucial zone for the Nifty in coming sessions. Bank Nifty faces resistance at the 44,000 level, where the highest OI is built up on the Call side. On the other hand, support is observed at the 43,500PE level, where Put writers are active. The Implied Volatility (IV) for Call options concluded at 10.89 per cent, while Put options closed at 11.79 per cent. The Nifty VIX, which measures market volatility, ended the week at 11.55 per cent. The PCR of OI (Put-Call Ratio) settled at 0.99 for the week less than previous week indicates more Call writing. Technically, positions in the Nifty point towards further downside on back of profit booking. On downside now, 18,600 would act as strong support levels, below which Nifty is expected to slide further towards 18,500 levels. Keep focus on sector-specific and stock-specific moves.

After media reports that the US authorities are looking into the representations that Adani made to its American investors following short-seller Hindenburg’s report, renewed selling was seen in stocks of Adani Group. Punters in Adani stocks say that this wave of selling will be short lived one. Global IT giant Accenture’s earnings stirred further uncertainty among already apprehensive Indian IT investors. The Q3 results were a mixed bag, with smaller-than-expected deals impacting revenue growth. Accenture’s performance is frequently viewed as a barometer for the Indian IT sector, and the anticipated client spending slowdown casts a shadow over the sector’s revenue growth outlook for FY24. Fears of a potential recession add to the looming concerns for the industry. IT major Wipro’s Rs12,000 crore-share buyback would close on June 29. The issue opened on June 22. Stock futures looking good areBharti Airtel, HDFC, Mannapuram, McDowell, Shriram Finance, Coromandel and HCL Tech.Stock futures looking weak are Adani Enterprises, Grasim, Maruti, Mphasis, PVR Inox and Persistent Systems.

- The author is a senior maket analyst and former vice- chairman, Andhra Pradesh State Planning Board