Investors look to cues from US Fed meet

IPO market continues to sizzle with several IPOs opening for subscription. Sai Silks Kalamandir, Signatureglobal India, Vaibhav Jewellers, Samhi Hotels, Zaggle Prepaid Ocean Services and Yatra Online are making offers

Buoyed by good macro-economic data like strong industrial output for July, modest fall in August inflation, decline in core inflation in the US, and the European Central Bank (ECB) hints at a halt in rate hikes; the domestic stock markets ended the week on strong footing hitting new all-time highs. BSE Sensex climbed 1,240 points or 1.9 per cent to 67,839 and NSE Nifty rose 372 points or 1.9 per cent to 20,192 points. However, the renewed surge in trading triggered a wave of profit-booking in the broader markets amid rising concerns over valuation, pushing the Nifty Mid-cap and Small-cap indices down 0.4 percent and 0.14 per cent. Sectorally, auto, banking, financials, technology and pharma witnessed good buying interest.

FIIs remained net sellers during the week ended too with sales of Rs9,580 crore till date in September. However, this did not impact the market momentum as DIIs bought over Rs10,000 crore worth shares during the month. With US dollar index above 105 mark and the US bond yields at 4.3 percent, market players do not expect much buying from FIIs in near term. With international crude oil prices jumping to a 10-month high, market participants will keep an eye on the oil rates as India is a net oil importer and any major spike in prices from here on may impact the sentiment. In the coming week, the key factor to watch out would be the outcome of two-day US Fed meeting followed by US economic projections. Observers feel that the US Fed may decide to pause interest rate hikes in the September meeting and may keep Fed funds rate in the range of 5.25-5.5 percent, but indicate a chance of hike in November or December meeting. The five-day special session of Parliament is all set to commence from Monday, September 18. Any dramatic surprise resolutions may trigger volatility in the markets. IPO market continues to sizzle with several IPOs opening for subscription.

Sai Silks Kalamandir, Signatureglobal India, Vaibhav Jewellers, Samhi Hotels, Zaggle Prepaid Ocean Services and Yatra Online are making offers. Taking advantage of irrational exuberance in SME and Emerge segments, many unknown companies are making the initial public offerings. Some of them are Hi-Green Carbon, Mangalam Alloys, Marco Cables & Conductors, Organic Recycling Systems, Madhusudan Masala, Techknowgreen Solutions, Master Components, Holmarc Opto-Mechatronics, Cellecor Gadgets, and Kody Technolab IPOs.

On the listing front, Jupiter Life Line Hospitals, Jiwanram Sheoduttrai Industries, Unihealth Consultancy and Meson Valves India will list their shares in the coming week. The IPO bubble in front of our eyes was long in the making; last few months it is just moving to extremes.

Listening Post: Forget the RBI / US Fed, and Focus on the Economy

What matters for long-run returns is getting the direction right. It’s easy to get caught up in whether the RBI or the US Federal Reserve will raise rates 0.25 or 0.5 percentage point (probably the latter) or whether it will start cutting again by the end of the year (almost certainly not), and invest accordingly. But it is time to step backThe GDP estimate of the current quarter drawn from data released so far puts growth close to 6.3 per cent, way higher than the slight fall economists predicted at the start of April. Consumer sentiment is up, according to preliminary figures, while inflation expectations are down after the recent spurt in retail CPI. Even the highly interest rate sensitive markets are showing signs of life.

The question is: Did those who waited on the side-lines miss the best part of the recent market rally? And has it gone too far? It certainly has gone a long way: Several stocks are up more than 50 per cent from year lows for one amateurish definition of a new bull market. And the extra earnings yield (earnings/price) offered by the Nifty above bonds is shrinking fast. Sure, there are signs that investors suffering from FOMO, fear of missing out, are rushing to get back into stocks, pushing some of the bets on new sectors like artificial intelligence and EV to silly levels. And perennial speculator stocks are doing well again. Another leg to the bullish story is that the equity rally has broadened from frontline counters to mid-cap and small-cap stocks. Both Mid-cap and Small-cap indices are scaling new highs regularly. As investors who were staying out of stocks realize they missed the change of economic direction, there should be more to come. The bearish story is that FOMO never lasts and that the economic revival is far less of a sure thing than it seems. It isn’t that bears have spotted something everyone else has missed. It is just that many of the same economic concerns that earlier this year led economists to predict a recession in US are still in place: The lagged effect of rate rises. No one knows how long it will take to hit the economy, but defaults are already ticking up among those most exposed to trouble, notably on credit-card debt, auto loans, parts of commercial real estate and weak companies with variable-rate loans. Finally, the data aren’t as good as the market mood in US. Manufacturing surveys show the sector is suffering and might get worse, with inventories rising and new orders falling. The jobs market is still strong, but new weekly claims for unemployment benefits are up almost 50 per cent from previous lows. Cascading effect of any fallout in US markets on other global markets is inevitable. FOMO will keep the rally going a little longer, but the economic direction of travel feels much more uncertain than the price action suggests. For now, the trick for investors when assessing the economic data is to ignore the noise about whether it means one or maybe two more rate hikes or cuts to come. What matters is the bigger economic picture. Don’t sweat the small stuff, even from the Fed or RBI.

Quote of the week: We don’t prognosticate macroeconomic factors, we’re looking at our companies from a bottom-up perspective on their long-run prospects of returning

— Mellody Hobson

It’s very difficult to predict when the next recession or stock market crash will come, so many of the best investors don’t even try. Instead, look for good companies with the strength to make it through the occasional challenging economic environment.

F&O / SECTOR WATCH

Nifty and Sensex scaled to fresh lifetime highs this week. Benchmark indices advanced for a third week in a row on a weekly basis. On weekly basis, Bank Nifty surged by more than two per cent and the Nifty gained over one per cent. Overall, the market sentiment is likely to remain positive in the coming week, too, with sector rotation in broader indices. On the weekly Options front, the maximum Call Open Interest was seen at 20,200 strike, followed by 20,300 & 20,500 strikes. Maximum Put OI was at 20,100 strike, followed by 20,000 & 20,200 strikes. Shifting focus to Bank Nifty, the 46,500 strike exhibited the highest Call OI, closely followed by the 47,000 strike. On the Put side, the 46,000 strike held the highest OI. In terms of Implied Volatility (IV), Call options for Nifty settled at 10 per cent, while Put options concluded at 11.09 per cent. The Nifty VIX, a gauge of market volatility, closed the week at 11.32 per cent. The Put-Call Ratio of Open Interest (PCR OI) stood at 1.47 for the week, indicating a greater inclination towards Put writing as opposed to Calls. It is anticipated that Nifty’s trading range will be bound between the psychological levels of 20,000 and 20,400. Avoid large speculative positions at this stage of market advice old timers. Stock futures looking good are Ashok Leyland, Granules, ICICI Bank, HCL Tech, ONGC, TCS and UPL.Stock futures looking weak are ABB, Jubilant Food, SBI Card, PEL, Pidilite, Siemens and Vedanta.

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