Fresh war threat impact in store for mkts

Trying to convince people otherwise can backfire. After the strong rally in last few months in mid-cap and small-cap stocks, past performance suddenly felt like a guarantee of future results, but investors should always remember that it isn’t

In the near term apart from Q2 earnings, the market participants will keep an eye on CPI inflation for September releasing on October 12. The CPI inflation, an important data point for the MPC, is expected to cool down further due to falling vegetable prices and cut in LPG price

Supported by the falling international crude oil prices, healthy domestic PMI data, and Monetary Policy Committee’s status quo in repo rate; the domestic stock markets recovered significantly from weekly lows to snap two-week losing streak and closed moderately higher for the week. BE Sensex gained 167 points at 65,996 points and NSE Nifty rose 15 points to 19,654 points. In the broader market, the Nifty Mid-cap index lost 0.6 per cent and Small-cap index climbed 0.7 per cent. In the shadow of the US 10 year treasury yield jumping to 16-year high and US dollar index hitting the highest level since November last year. FIIs net sold Rs8,400 crore worth of shares in the cash segment. DIIs have net bought Rs4,400 crore worth shares in first week of October. The sharp fall in oil prices from more than 10-month high was a positive for the Indian equity markets as India is the net oil importer. Rising US bond yields and stronger dollar along with global demand concerns impacted oil prices during the week.

However, this may be a short lived phenomenon say oil watchers. The RBI policy meeting outcome, expectedly, sans any major surprise elements. Policy rates were kept unchanged, and the stance of the monetary policy remained as withdrawal of accommodation. The backdrop to this policy was a slowing inflation, especially as vegetable prices dropped. The higher for longer interest rate regime remains relevant not only for the world, but also for India. It could also be difficult for the RBI to cut rates ahead of the US Fed as the interest gap between India and the US has narrowed to only about 250 bps, hardly beating the expected INR depreciation on an annual average basis.

This interest gap could remain relevant for investors into the Indian debt market, including for investors through the JPM Bond Index inclusion route. In the near term apart from Q2 earnings, the market participants will keep an eye on CPI inflation for September releasing on October 12 and impact of global geo political events like Israel –Hamas War. The CPI inflation, an important data point for the MPC, is expected to cool down further due to falling vegetable prices and cut in LPG price. The activity in primary market seems to be slowing down as only one IPO is set to be opened for subscription next week.

Listening Post: Why Investors Can’t Kick the ‘Past Performance’ Habit

Market history never repeats itself exactly. Trying to convince people otherwise can backfire. After the strong rally in last few months in mid-cap and small-cap stocks, past performance suddenly felt like a guarantee of future results, but investors should always remember that it isn’t. How similar was September fall to last year’s correction in some months. It was a wacky few weeks and investors might be forgiven if they momentarily forgot that the past never repeats itself exactly. It’s a tough habit to break: We live in a world in which skill and excellence often persist and price is generally a good signal of quality. Great athletes with a hot hand seem to score again and again; your favourite restaurant’s food should be as tasty today as it was last month; a luxury car typically drives better than a cheap compact.

And there’s some truth to it in the markets, too. Stocks whose earnings and prices have recently been rising tend to keep winning, while those that have lately been losers often keep losing. But the stock market is a complex, dynamic system that doesn’t follow the rules of restaurants or cars. Investing is so competitive that history can rarely repeat for long; if any past pattern reliably recurred, so many people would pounce on it that it would soon stop working. Indeed, when the winners-keep-winning patterns reverse, they can deliver devastating losses. The human habit of pretending that a rear view mirror of a crystal ball is almost incorrigible. Investors like seemingly coherent explanations of market moves, such as those the news media provides. As soon as the market stops going up, those explanations—no matter how arbitrary—tend to make the new down world seem more likely to persist.

Trying to get people to stop that behavior can backfire. Strikingly, when many investors view the standard mutual-fund disclaimer that ‘past performance does not guarantee future results,’ they chose the fund with higher fees more often. A lot of experienced investors seem to believe that the warning won’t apply to them. They think, ‘I can make it work, because I know better.’ The phrase does not guarantee future results may cause investors to conclude—erroneously—that past performance is nonetheless a highly reliable indicator. What does discourage investors from chasing historical returns, is a warning: Some people invest based on past performance, but funds with low fees have the highest future results. That apparently prompts investors to make a social comparison between themselves and others. Who wants to settle for investing like some people? Everybody wants to get ahead of the co-investors, So, as you watch the market on its latest wild goose chase after past performance, remember: Some people invest like that. You don’t have to.

Quote of the week: The four most dangerous words in investing are, it’s different this time — Sir John Templeton

Follow market trends and history. Don’t speculate that this particular time will be any different. For example, a major key to investing in a specific stock or bond fund is its performance over five years.

F&O/ SECTOR WATCH

Mirroring the smart recovery from weekly lows in the cash market, the derivatives segment witnessed brisk trading volumes. Oversold conditions in several stock futures and mild short covering ahead of the Q2 results season helped the recovery in the market. In the option segment, in the Nifty the maximum Call Open Interest (OI) was at 20,000 strike, followed by 20,500 & 19,900 strikes and the maximum Put Open Interest was seen at 19,500 strike, followed by 19,600 & 19,000 strikes. For the Bank Nifty, the highest Call Open Interest was concentrated at strikes 44,500 and 45,000; and the highest Put Open Interest was observed at strikes 44,300 and 44,000. Volatility (IV), Call options for Nifty settled at 10.04 per cent, while Put options concluded at 10.93 per cent. The Nifty VIX, which serves as a gauge of market volatility, closed the week at 10.94 per cent.

The Put-Call Ratio of Open Interest (PCR OI) stood at 1.31 for the week. The overall options data also indicated that the Nifty may face strong resistance at 19,900-20,000 levels, with crucial support at 19,600-19,500 levels. Market activity portrays cautious sentiment among investors, possibly driven by a combination of global uncertainties and domestic factors. Renewed buying interest was seen in IT, media and realty sectors. Defensive sectors pharmaceuticals and FMCG saw mild profit booking.

With concerns around inflation and global macroeconomic risks taking centrestage, and bond yields rising, further capital outflows from FIIs in the short term is likely say market watchers. High crude oil prices will weaken the profitability of the country’s three state-owned oil marketing companies (OMCs) - Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) - as they have limited flexibility to pass on higher raw material costs to consumers due to the forthcoming Lok Sabha elections in May 2024.

Stay away for present. In the telecom sector, Reliance Jio, Bharti Airtel, and Vodafone Idea (Vi) are set to report sequential mobile revenue growth in the Q2 buoyed by strong user additions, improved customer mix and higher data usage levels. Industry watchers expect Airtel to report higher average revenue per user (ARPU) growth than Jio in the July-September period riding a pick-up in 2G to 4G conversions and an extra day in the quarter. Stock futures looking good are Indigo, L&T Finance, Havells, Sun TV, Titan and Voltas.Stock futures looking weak areDalmia Bharat, Siemens, Vedanta, SRF and Ultratech.

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

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