Investors look to US Fed decision on rate hike

Buoyed by renewed buying support from FIIs, better than expected corporate earnings, weak global crude oil prices and positive global cues; thestock market resumed its uptrend and went on to post decent gains over the past five sessions. The Indian market erased previous week losses and ended with 2.5 percent gain during the week ended. BSE Sensex added 1,457.38 points or 2.44 percent to close at 61,112.44, while Nifty gained 440.95 points or 2.50 percent to finish at 18,065. Performing in line with the benchmark indices, both the Mid-cap and Small-cap indices rose 2.6 per cent and 2.4 per cent. All the sectoral indices ended in the green. Nifty PSU Bank index outperformed by adding 7.3 percent.

Among other indices, Realty was up five per cent, Infra index up by 3.6 per cent and IT was higher by 3.3 per cent. FIIs turned buyers in the week with purchases worth Rs5,395.13 crore. DIIs also bought equities worth Rs1,874.25 crore. In the month of April, FIIs bought equities worth Rs5,711.80 crore and DIIs bought equities worth Rs2,216.57 crore. Indian rupee closed below Rs82 for the week at 81.83 to a dollar. It is pertinent to observe that during the April month, the Sensex rose 3.6 percent and Nifty added four per cent. Smallcap and Midcap indices added seven percent and five percent respectively showcasing exuberance in broader market. Nearly 20 Smallcap stocks added between 40-102 per cent. With the results season underway, stocks continue to react to their Q4FY23 performance.

Near-term direction of the market in the holiday-shortened week would largely depend on the outcome of the US Fed Meeting, the ongoing Q4 earnings season, RIL board meeting for demerger of financial services division, auto sales data, international crude oil prices and other global cues.

Despite an uncertain economic environment, US Fed is expected to raise interest rates by 25 basis points. Results from the big tech companies in US have sparked investors’ hopes that the worst of the post pandemic hangover is fading, but they also show how much growth has slowed. However, the current moment still bears little resemblance, though, to the lofty days of the pandemic that drove tech adoption to new heights. The investigation of Sebi and the Supreme Court-appointed expert committee on the Adani-Hindenburg saga will also keep traders guessing. The markets are closed for May 1 (Monday) is a holiday on account of Maharashtra Day.

Listening Post: Don’t Let Other Investors Make Up Your Mind. Imagine an investment that can deliver high returns with barely any risk, almost completely independent of the stock market. Good luck finding that. New research shows that confidence of others can influence your decisions even more than your own experience can. Confidence is contagious. But acting on it can be dangerous. Although it has slipped a bit lately, the Nifty is up almost six per cent since last one month, and surveys show that investors are feeling sharply more optimistic. It’s fine to bask in that good feeling if you wish, but new research shows that the confidence of others can influence your decisions even more than your own experience can. With markets still high, investors need to be even more vigilant than usual against the risk of getting stampeded by other people’s emotions. Research of Neuroscience finds that a particular region in the human brain monitors how positive other people seem to be about their choices. Humans are biologically equipped with the potential to allow more-confident people to have greater sway over our own beliefs. Participants in an experiment guessed whether the next marble drawn from an urn would be red or green. They could rely on the colours of the last few marbles they had picked themselves. They were told they could also take account of what up to four other people were forecasting and how confident the strangers were in those predictions. Naturally, the participants were more likely to predict that the next marble would be red if most of their recent draws from an urn had also been that colour. They were more prone to pick red, however, when they learned that other people had confidently chosen it. Confidence was represented by how fast the other people picked the colour and whether they smiled as they did so. And confident investors suddenly seem to be everywhere. So you could visualize the stock market as a poltergeist or hobgoblin who takes a twisted delight in playing pranks on the expectations of the investing public. This bull market for stocks is pretty old, making it the second longest in modern history. Now, more than ever, you should take extra risk only because your own rigorous analysis leads you to conclude that it’s a good idea, not because other folks think it is.

Quote of the week: “The individual investor should act consistently as an investor and not as a speculator.”

— Ben Graham

You are an investor, not someone who can predict the future. Base your decisions on real facts and analysis rather than risky, speculative forecasts.

F&O / SECTOR WATCH

Mirroring the positive undercurrent in the cash market, the settlement week witnessed robust trading in the derivative segment. Despite good gains in April series, rollovers in Nifty futures were subdued at 64 per cent (last month 74%), well below 3-month average of 75 per cent. On other hand, market wide rollovers stood at 90 per cent (last month’s market wide 92%) in value terms Rs18,5214 cr, which is better than last month Rs17,6176 cr. May series started with a bang, with Nifty gaining almost 2.50 per cent over the week.

From the options front, Put writers added hefty Open Interest at 18m000 strike, while Call writers were seen shifting to higher bands with marginal Open Interest addition. Implied Volatility (IV) of Calls closed at 9.97 per cent, while that for Put options, it closed at 10.65 per cent. The Nifty VIX for the week closed at 11.43 per cent. PCR of OI for the week closed at 1.41. Technically, both the Nifty and Bank Nifty can be seen moving with formation of higher bottom pattern on daily and weekly charts and is expected to keep their bullish momentum intact in upcoming sessions as well. In the event of correction, 18000-17800 zone would act as a strong support area for Nifty; while on higher side, expect Nifty to move towards 18,300 level in upcoming sessions. Sectors that can outperform Index in the May series are auto, banking, finance, capital hoods, FMCG and realty. Auto stocks would be in focus this week as automobile companies will release their monthly sales data on May 1. RIL is convening a board meeting on May 2 to approve the demerger of its financial services business and rename it to Jio Financial Services (JFSL).

JFSL will be valued between Rs157 to Rs190 post demerger, after assigning 30 per cent discount to market value of investments in RIL say analysts. Nearly all the bank stocks have beat market expectations. Not only the private sector but even the public-sector banks (PSBs) are churning good results. Stay overweight on the banking sector. Stock futures looking good are Aarti Inds, Bharti Airtel, Bajaj Finance, Grasim, JK Cement, Jindal Steel and PFC. Stock futures looking weak are Crompton, Gujarat Gas, ONGC, M&M, PVR and Tata Chemicals.

STOCK PICKS

Jocil Ltd

Jocil Ltd (a subsidiary of The Andhra Sugars Ltd) is engaged in the manufacture of stearic acid, fatty acids, refined glycerine, soap noodles, toilet soap, and industrial oxygen and in the generation of power from biomass and wind. The company's segments include Chemicals, Soap and Power Generation. The Chemicals segment includes fatty acids, stearic acid and refined glycerine. The Soap segment includes toilet soap, soap noodles, soap products and special products. Stearic Acid Flakes are supplied in various grades for use in Pharmaceuticals, Cosmetics, Textiles, Paints, Plastics, Tyres, Tread Rubber, Metal Polish and Other Industries. The Power Generation segment includes the power generated by biomass power plants and wind energy generators (WEGs). It also has about four wind energy generators in the state of Tamil Nadu.The wind farms are registered as CDM Project with UNFCCC. Its businesses include oleochemicals, soap and contract manufacturing. The oleochemicals business includes stearic acids, distilled fatty acids, fractioned fatty acids and refined glycerine. The company has about six megawatts (MW) biomass cogeneration captive power plant located within the factory premises to meet the power requirements of the manufacturing activity. The company has long standing and continuing association with FMCG majors: Hindustan Unilever, Johnson & Johnson, Henkel India and Reckitt Benckiser. It’s continuous unbroken dividend paying record since 1988-89. All the surfactant companies like Aarti Surfactants and Galaxy Surfactants are witnessing good price action on good visibility of earnings. Available at discount to BV of Rs232, buy at current levels for target price of Rs300 in medium term.

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