Investors cautious on next global cues

Speculative asset class Bitcoin has also witnessed surprising demand on the back of Israel-Hamas conflict and has touched $35,000 during the course of week

Alarming Signals

♦ Global volatility may delay the recovery trend

♦ Risk of further slowdown in global economy looms large

♦ Elevated interest rate

♦ Rising geo-political tension

Continued to be spooked by the Israel-Hamas conflict, higher bond yields, unabated selling by FIIs and the weak ongoing earnings season; the domestic markets fell by around 2.5 percent during the week ended to June levels. BSE Sensex fell 1,615 points to settle at 63,783 points, and NSE Nifty plunged 495 points to 19,047 points. The Nifty Mid-cap and Small-cap indices were also down three per cent and two per cent. FIIs sell off during the week was more than Rs13,000 crore. In October, the total selling was almost equal to September at Rs26,600 crore. This is attributed to elevated US bond yields, Israel-Hamas war-led uncertainty in West Asia, and mixed September-quarter earnings. DIIs have managed to offset the FII outflow to a major extent by buying Rs11,550 crore worth of stocks during the week and Rs23,400 crore in current month.

It is pertinent to observe that Gold and Silver traded with a new vigour last week as the yellow metal hit five-month highs. Observers predict that Gold has the potential to target all-time highs near $2,085-$2,090 per troy ounce. Speculative asset class Bitcoin has also witnessed surprising demand on the back of Israel-Hamas conflict and has touched $35,000 during the course of week. Bitcoin is a highly volatile and speculative investment, prone to wild swings in price.

In the short-term, market sentiment remains cautious, with investors closely monitoring developments in the West Asia, US Fed meeting outcome, international crude oil prices, rupee-dollar fluctuations, upcoming corporate earnings, and key economic data, including domestic PMI figures. Global volatility may delay the recovery trend in the domestic market since the global market is focused on the risk of further slowdown in global economy due to elevated interest rate and rising geo-political tension. Coming week would witness results from prominent companies like like State Bank of India, Larsen & Toubro, Tata Motors, Bharti Airtel, Tata Steel, Sun Pharmaceutical, Hero Motocorp, Titan, UPL, Tata Consumer, Adani Enterprises, Britannia Industries, GAIL India, IOC, Ambuja Cements, TVS Motor, InterGlobe Aviation, DLF, Godrej Consumer andIEX. Unfazed by the uncertainty in secondary market, the primary market to attract good inflows. In the mainboard segment, IPOs of consumer-ware company Cello World and Mamaearth parent HonasaConumer will be opening in the week ahead. In the SME segment, Transteel Seating Technologies, Vrundavan Plantation, Mish Designs and SAR Televenture are in the line.

Listening Post: Last Diwali Investing Seemed Easy. Not Anymore.All of the simple signals have disappeared

Sometimes investing seems easy. Not the business of actually making money—that is always hard. But there are times when the market makes it easy to have a strong view and decide where to put money. Last year was one of those times, but for both bulls and bears, the certainties are gone. Stocks started 2023 overvalued thanks to the overconfidence of the bulls, providing the simplest of signals to the bears. US Bonds started last year having wilfully ignored runaway inflation and the necessity of the Federal Reserve’s belated reaction.

Investing is hard again, because the simple signals are gone. Stock valuations as measured by price to 12-month-forward earnings are back down close to their long-run average. Bond yields are up with the 10-year yield reaching close to the four per cent. The Fed’s rate increases still matter, as they always do, but after a year when the policy direction was obvious, there is now plenty of room for disagreement about what the Fed should do, what it will do, and when. Recession is a widely discussed threat to earnings again, but how big a threat remains unclear. Good news on the economy can still be bad news for investors, because it means higher interest rates. But now good news on the economy can also be good news for investors, because it means a recession is less likely. Which outcome materializes matters a lot—but it is hard to have confidence in predicting either outcome.

Even investor sentiment is puzzling. There was much buying of put options to protect against falling stock prices over the holidays, pushing the ratio of puts to bullish calls to a record high, and suggesting a lot of fear (usually a good time to buy). But surveys of investors find them cautious, rather than panicky. It might be time for investors to return to the old thinking. After three years of everything being extreme, things are finally returning to normal. We’ve been conditioned by recent events to expect gigantic swings in government policy, demand, supply, inflation and interest rates, bringing clear indicators for the direction of asset prices. Now we have to get used to moderation again and the continual uncertainty it brings to investing. And sure, whether inflation turns out to be sticky or not matters. Outcome of the Assembly Elections and the General Election in the coming year first half will determine the course of markets in next twelve months. But we don’t have to worry about missing out on a bubble or about a bubble bursting, a pandemic or the danger of a depression. Things are getting back to normal, and that is good.

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

Derivatives segment witnessed heightened activity during the settlement week. Rollovers in Nifty futures were at 83per cent (last month 76%), above last 3-month average of 79 per cent. On other hand, market wide rollovers stood at 92 per cent (last month market wide 92per cent). Rollover cost was at 0.52. The Options data also indicated that 19,200 is expected to be key immediate resistance for Nifty, followed by 19,500-19,600, whereas on the lower side, 19,000-18,800 will be broad support area. The maximum Call Open Interest was seen at 19,200 strike, followed by 19,500 strike; and the maximum Put Open Interest was visible at 19,000 strike, followed by 18,800 and 18,900 strikes. In Bank Nifty, the highest Call Open Interest was observed at the 43,000 strike, while on the Put side, it was concentrated at the 42,500 strike. Implied Volatility (IV) for Nifty’s Call options settled at 11.89 per cent, while Put options concluded at 12.89 per cent. The India VIX, a key indicator of market volatility, concluded the week at 11.73 per cent. The Put-Call Ratio of Open Interest (PCR OI) stood at 1.22 for the week.

The rollover rate for the November series is above the average of the past three months for Nifty. On the flip side, Bank Nifty dropped in rollover rate of 79 per cent, slightly in line with the average of last 3 months. Nifty experienced a minor recovery, finding support at the 200-day exponential moving average and closing above the psychologically significant level of 19000 levels. The strategy of Sell on rise is recommended as long as Nifty trades below the 19,200 mark. Stock-specific approach is advised. Sectors that can outperform Index in the November Series are the oversold ones. Auto sector may emerge as leader. Track monthly auto sales data for October, which is scheduled to be released at the start of coming week. Industry experts expect companies to continue to post healthy numbers due to the ongoing festive season that will end in Diwali. Product launches by companies, rising production levels, and strong economic growth also seem to be boosting the sales. In September, passenger vehicle sales grew 19 per cent, and two-wheeler sales 22 per cent from last year. Buy Tata Motors, Ashok Leyland and Maruti.

Stock futures looking good are ACC, Bajaj Auto, L&T Finance, Muthoot Finance, GNFC, Trent and Voltas. Stock futures looking weak are Balkrishna Inds, RBL Bank, PI Inds, Tata Chemicals and Zydus Wellness.

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

Welspun India Limited

Welspun India Ltd (Welspun) is one of the largest home textile manufacturers in the world offering a wide spectrum of home and technical textile products and flooring solutions. The company manufactures a range of home textile products, primarily terry towels, bed linen products and rugs. In FY23, the company signed a brand licensing agreement with Disney for Europe, the Middle East, and the Africa region, giving Welspun the rights to design, develop, manufacture, and distribute a complete range of home textiles products leveraging Disney’s vast franchises and characters across Disney, Pixar, Marvel, and Lucas brands.

The company’s US e-commerce strategy follows a fast-growth model utilising two types of e-marketplaces. The pure play approach involves marketplaces such as Amazon and Wayfair, providing the company complete control over assortment, programmes, SKU listings, and pricing. The second approach involves retail marketplaces, facilitating direct drop-shipping to customers via vendormanaged inventory. Buy on declines for medium term target of Rs225.