Investors need to be cautious over short-term trading

Renewed confidence from the positive global cues, accelerated vaccination program, opening up of economy, optimism over the prospect of additional fiscal stimulus and positive macroeconomic data; helped markets race higher during the week ended June 27, 2021. The Sensex was up 226.04 points, or 0.43 percent at 52,925.04 points, and the NSE Nifty was up 70 points, or 0.44 percent, at 15860.40 points. Broader markets moved in tandem with benchmark indices. FIIs sold equities worth Rs2,685.9 crore, while domestic institutional investors (DIIs) bought equities worth Rs 4,729.17 crore last week. So far in June, FIIs bought equities worth Rs 3,162.86 and DIIs bought equities worth Rs 2,436.20 crore. The back-and-forth in markets over the past two weeks suggests there is still lingering uncertainty over the path of interest rates, inflation and monetary policy. That, combined with the relatively low levels of volatility in markets lately, has left money managers cautioning there could be some bumpy stretches ahead for stocks. Despite the relentless incremental rise, the market, in general, is also sending out several warning signs. Sceptics warn that the lead indicators like the breadth, or the internal strength of the market are weak. Caution should be buzz word from hereon. The market can become greedy or fearful in the short term resulting in mispricing. However, in the long term, the market will be driven purely by the fundamentals. Time will prove if the markets are insensitive, bubble waiting to burst or discounting future growth.

Differentiate the noise from news, rumours from facts and have the conviction to invest in volatile markets in the longer term say experienced investors. GoI has announced that the exemption on grid charges for 25-years would now be available to solar, wind, pumped hydro storage and battery energy storage systems to be commissioned up to June 30, 2025.

It is no wonder that RIL is also moving into green energy space aggressively. With Gujarat Govt taking lead in announcing a new EV policy, other state governments are also reportedly coming out with slew of incentives for the EV sector. In the week ahead, the update on the

monsoon, rupee / dollar movement, FIIs attitude over emerging markets, macroeconomic data and global cues will continue to dictate the trend of the stock market. NALCO, Graphite India, NBCC, Vodafone Idea, Rail Vikas Nigam, GMDC and Hindustan Aeronautics are among the companies which are going to announce their quarterly earnings in the next week.

Investor Memoirs: The Six Blind Men and The Elephant

"Once, 6 blind men are asked to describe an elephant. The first one touches the side and describes the elephant like a wall. The second one touches the tusk and calls it a spear. The third one touches the trunk and describes it as a snake. The fourth one touches the knee and calls it a tree. The fifth one touches the ear and says it's a fan. Finally, the last one touches the tail and describes the Elephant as a Rope! "None of them called an Elephant an Elephant. Do you know why? Because their perceptions lead to the misinterpretation. They all describe the elephant differently, just on the basis of the part of the elephant they touched.

Let's see how this relates to stock markets and investors. Consider the stock market as the elephant while investors or participants in the stock market as the blind men. Often investors see their portfolio's performance or the Stock Markets from the current / recent results perspective. This leads to incorrect interpretations.

When you are driving alone and you see a speed breaker – you slow down. However, after you've passed it, you continue to drive slowly because you think there is another one out there. Similarly, people panic when their portfolio goes down and they think it will continue to do so. They feel excited when their portfolio goes up and they think it will continue to go

up. What they forget is that their goal is long term. Markets go up and down every day! The current performance of the market doesn't alter their goal to retire comfortably 20 years down the line.

Ideas from this story that can be used:

1. Most investments don't generally offer steady returns. They change every single day.

2. The current behaviour of the stock market should not cause investors to deviate from their long term investment goals.

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

Settlement week witnessed brisk trading in the derivatives segment. Nifty saw rollovers at 84.61 per cent as against the three-month average of 76 per cent and Bank Nifty witnessed rollovers at 83.88 per cent over the three-month average of 76.4 per cent. Stock futures have seen a rollover of 89 per cent to the July series as against the last three series average rollover of 87 per cent. In terms of the number of shares, the July series has started with stock futures open interest of 421 crore shares as against 437 crore shares, a level at which the June series had begun. It is 20 per cent lower than the all-time high Open Interest (OI) of 523 crore shares seen at the start of the February 2018 series. Maximum Put OI was seen at 15,500 followed by 15,000 strike, while maximum Call OI was seen at 16,000 followed by 16,500 strike. The Implied Volatility (IV) of Calls closed at 13.73 per cent, while that for Put options closed at 14.32 per cent. The Nifty VIX for the week closed at 15.10 per cent and is expected to remain volatile. PCR of OI for the week closed at 1.42.

Amidst some bouts of profit booking, a move past the 15850-15900 zone may propel the Nifty to 16400-16500 level. Use any corrections towards 15600 level to accumulate long positions with stop loss of 15400. In percentage terms, Bank Nifty has seen a higher rollover of 84 per cent as against last three series average rollover of 78 per cent.For any sustainable up move, the Bank Nifty will have to cross 36,000 level. Surprise rally of 1,500 points in the Bank Nifty in the week ahead is not ruled out say punters. Sectorally, buying was seen in capital goods (up 4.06%), metals (up 3.5%), and IT (up 3.1%), while selling pressure was seen in oil (down 2.1%), utilities (down 0.7%), and FMCG (down 0.2%) during the week ended. Strong earnings from global IT major Accenture triggered renewed buying in IT stocks. IT is going through a multi-year transformation and is in for good times for some time. Focus will be on outsourcing digital and new age technologies and that has once again become clear from the earnings of the industry leaders. Stay overweight in the sector. With sector rotation playing out in the market Infrastructure, Construction and Capital goods look good for strong medium term gains. Heightened activity indicated in the fore new entrants to F&O-Metropolis, Coromandel, ABFRL and Indian Hotels.

Stock futures looking good are Axis Bank, ICICI Bank, GMR Infra, SAIL, SBI, Tata Steel and Zee Entertainment. Stock futures looking weak are Aarti Inds, Idea, APL Ltd, ONGC, Tata Chemicals and Voltas.