Global cues in focus

Domestic Support

• Surge of funds in small-caps
• Robust domestic investment flows
• FPIs’ activity relatevely lesser
• Current trend underscores domestic investors’ significant influence

Buoyed by positive macroeconomic data like two key macroeconomic indicators fiscal deficit and core sector output growth presenting a robust picture of the economy, falling US bond yields, decreasing crude oil prices, increased buying from FIIs, and expectations of rate cuts by major central banks across the world in the early part of 2024; the Indian market ended year 2023 and the last week of the year on strong note of optimism. Bouncing back from the losses of the previous week, BSE Sensex gained 1,133.3 points or 1.60 percent to close at 72,240.26 points, while NSE Nifty jumped 382 points or 1.78 percent to end at 21,731.4 points. On December 28, the Sensex and Nifty touched fresh record highs of 72,484.34 and 21,801.45, respectively. For the year 2023, Sensex and Nifty rose 18.74 percent and 20 percent, respectively.

In the broader market mid-cap and small-cap indices also touched fresh record highs with BSE-Midcap and BSE-Smallcap adding 2.6 percent and 1.6 percent, respectively.

FIIs bought equities worth of Rs8,648.96 crore, while DIIs also bought equities worth Rs666.06 crore. However, in the month of December, FIIs bought equities worth Rs31,959.78 crore, while DIIs purchased equities worth Rs12,942.25 crore. Several factors have contributed to the huge gains in mid-cap and small-cap stocks in 2023. Key among these is the strong representation of sectors like manufacturing and exports, which are closely tied to the domestic economy and benefit from India’s growing economic opportunities and government support.

Additionally, disruptions in commercial real estate, regional banks, and IT service providers have opened new opportunities for small-cap investments. The surge of funds in small-cap is partly due to robust domestic investment flows, contrasting with the lesser activity of Foreign Portfolio Investors (FPIs) in the Indian stock market. This trend underscores domestic investors’ significant influence in driving the performance of Indian market. High-quality small caps with good products have become particularly attractive due to waning investor interest and declining analyst coverage, creating a favourable setup for these companies. Moreover, the unique composition of small caps, such as a more significant industrial sector and less overseas exposure than large companies, presents distinct investment opportunities.

The performance of mid-cap and small-cap stocks in 2023 has been impressive. However, investors need to approach these stocks with a balanced perspective. While they offer the potential for high returns, the associated risks must be addressed. A thorough understanding of market trends, sector dynamics, and individual risk tolerance is crucial before investing in mid-cap and small-cap stocks. Investors should also consider the global cues to make informed decisions. Near term direction of the market will be dictated by events like Q3 results of large corporates, Vote on Account Budget 2024, announcement of General Elections and developments on global front.

Quote of the week: The stock market is filled with individuals who know the price of everything, but the value of nothing — Phillip Fisher

That is another testament to the fact that investing without an education and research will ultimately lead to regrettable investment decisions. Research is much more than just listening to popular opinion.

F&O / SECTOR WATCH

Derivatives segment witnessed robust trading volumes, with both Nifty and Bank Nifty recording gains of more than 1.5 per cent. Rollovers in Nifty futures were higher at 79 per cent (last month 73%), above last 3-month average of 77.5 per cent. On other hand, market wide rollovers stood at 92 per cent (last month’s market wide 91%). On the flip side, Bank Nifty has seen same rate of rollover at 81 per cent, aligning with the average of the last three months. With the overall rollover rate for the January series nearly same as the average of the past three months; market players anticipate sluggish momentum in Bank Nifty and possible directional movement in Nifty. Recent rollover data in select counters suggests that traders have carried forward heavy bullish bets at steep levels, adding to the risk and heightened volatility.In the option segment, highest Call Open Interest in Nifty is at 22,000 and 22,500 strikes; highest Put Open Interest is at 21,700 and 21,500 strikes. In Bank Nifty, the highest Call Open Interest was observed at the 48,500 and 49,000 strikes, while the highest Put OI is at the 48,000 strike. Implied Volatility (IV) for Nifty’s Call options settled at 14.09 per cent, while Put options concluded at 15.23 per cent. The India VIX, a key indicator of market volatility, concluded the week at 15.14 per cent. This could be a forewarning as the India VIX has risen 34 per cent from a low of 10.8 on December 15 to a closing of 15.14 per cent on December 29.

The Put-Call Ratio of Open Interest (PCR OI) stood at 1.72 for the week. Watch out for nasty surprises in January, as markets have generated negative returns in seven out of 10 times in that month over the past 10 years. Last week auto, metal and FMCG sectors demonstrated relative strength as compared to the overall market, while profit booking was seen in IT stocks. With Q3 results in horizon, expect strong stock-specific moves in next few weeks. Stock futures looking good are Crompton, GNFC, ITC, Kotak Mahindra Bank, Tata Power, Powergrid, McDowell and Wipro. Stock futures looking weak are PVR Inox, SBI Cards, UPL, RBL Bank, M&M Finance and Tata Communications.

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

RPSG Ventures Ltd

RPSG Ventures Ltd (RPSG Ventures, RVL or the Company) is part of the RP-Sanjiv Goenka Group (RP-SG Group or the Group), a leading business conglomerate in India. Along with its subsidiaries, the company operates a diversified portfolio of businesses including information technology (IT) services, business process management (BPM), fast moving consumer goods (FMCG) including, ayurvedic formulations, real estate and sports. Other than IT services, which constitute its standalone operations, all other businesses are carried out through various subsidiary companies.

Its key operating subsidiaries include: Firstsource Solutions Ltd, which, along with its subsidiaries, is a leading provider of customised business process management (BPM) services in the US, the UK, India, Mexico and the Philippines.

Guiltfree Industries Ltd which along with its step-down subsidiary Apricot Foods Pvt Ltd, operates in the Indian FMCG sector under the brands Too Yumm, Naturali and Evita. Herbolab India Pvt Ltd, which markets Ayurvedic formulations focusing on health and wellness under the brand Dr Vaidya’s.

Quest Properties India Ltd, which operates in the real estate sector. It manages Kolkata’s first luxury shopping mall Quest and is developing a residential project in Haldia, West Bengal.

APA Services Ltd, which through its subsidiaries, operates and manages the iconic football club ATK MohunBagan. RPSG Sports Pvt Ltd and RPSG Sports South Africa PTY Ltd own and operate the Lucknow Super Giants franchise of the Indian Premier League and the ‘Durban Super Giants’ franchise of the South Africa T20 League respectively. Buy on declines for medium term target of Rs1,350.