Investors wary of volatility, inflation & mixed earning

Cold shouldering worries over rising interest rate, inflation, volatile global markets and mixed earnings; the markets recovered sharply and broke five-week losing streak during the week ended. The Sensex added 1,532.77 points (2.90 percent) to close at 54,326.39 while the Nifty rose 484.05 points (3.06 percent) to 16,266.2. Broader markets also followed the benchmark indices with both the BSE Small-cap and Mid-cap indices moving up by four and three percent each. FIIs continued their selling albeit at a reduced rate in the last week.

FIIs have sold equities worth Rs 44,102.37 crore and DIIs have bought shares worth Rs 36,208.27 crore till date in May. After hitting a new low, the rupee has erased some of its intra-week losses despite the sell-off in equities. Forex brokers expect further improvement in next few days. However, a move above 77.80 though will open target of 78.25.

Weekend decision to reduce the central excise duty on Petrol by Rs 8 per litre and on diesel by Rs 6 per litre will help to cool the inflation trajectory going ahead, and complement monetary policy say observers.

The move is prompted by the fastest rise of WPI and CPI in April. Government is also reducing the customs duty on raw materials and intermediaries for plastic products where import dependence is high. This will result in reduction of cost of final products. With steel prices on firm upward trajectory, the government is also calibrating customs duty on raw materials and intermediaries for iron & steel to reduce their prices. Import duty on some raw materials of steel will be reduced. Export duty on some steel products will be levied. In its stage-1 prediction, issued in mid-April, IMD said there would be normal rainfall in most parts of the country. A normal monsoon is the only hope for Indian farmers and agri-exporters facing uncertainties from all quarters — be it the weather gods or policymakers taking tough calls to rein in inflation. Companies announcing their earnings next week include SAIL, M&M, ONGC, Adani Ports, Grasim Industries, Coal India, Fortis Healthcare, MOIL, BDL, Berger Paints, Cummins, Hindalco and Zee Entertainment Enterprises, BEML, GAIL and United Spirits. After muted performance of Rainbow and LIC in the previous week, investors will now keep eye on two new listings in the next week, Delhivery and Paradeep Phosphates.

LIC Listing:

India's biggest life insurer stumbled on its trading debut after leaning on small investors to help it push through a record $2.7 billion IPO despite global market turbulence. The disappointing first week performance for LIC came even after the government had slashed the size and valuation of the share sale in response to choppy markets. The scaled-back deal, in which the government sold a 3.5 per cent stake, was still the country's largest-ever initial public offering. It was also the third-biggest in the world this year. LIC closed at Rs 826 per share on Friday, nearly 12 per cent below the IPO price of Rs 949. With a market value of about Rs5.5 trillion, or $71 billion, LIC is now the fifth-most valuable company listed on the Markets.

While investors overall placed orders for nearly three times the shares on offer, demand was strongest from individuals, who were offered large incentives to take part. LIC offered employees and other individual investors a 4.7 per cent discount to the offer price and gave policyholders a 6.3 per cent markdown. Demand from foreign investors, who had been huge buyers in an IPO boom last year, was muted. They bid for just 61 per cent of the total shares reserved for institutional buyers.

FIIs have been net sellers every month since October, pulling out more than $30 billion till date, amid uncertainties caused by Russia's invasion of Ukraine, quickening inflation and higher interest rates globally. Rising oil prices are pushing up India's import bill and pressuring the rupee. Earlier this month, RBI abruptly raised benchmark interest rates by 0.4 percentage, citing inflationary pressures and the risks that emerging markets face as rich countries withdraw their easy-money policies. The previous holder of the record for India's largest IPO also fared poorly in the public markets. Shares in One97 Communications Ltd, the parent of the financial-technology platform Paytm, fell nearly 73 per cent below their issue price.

Some investors had high hopes for LIC's share listing, as it is a household name in India, with around 280 million policies. Present selling was partly driven by smaller investors, including regular individuals and HNIs, who had bought LIC stock in the hope of selling it quickly at a profit. After the stock failed to trade up on its debut, these holders were exiting to limit their losses. Many brokers and analysts attribute the decline in LIC's share price to weaker global markets, and believe the stock has merit. India's benchmark indices the Sensex and the Nifty are showing a more resilient performance than many other major indexes across the globe.

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

Ahead of the settlement week, derivative segment witnessed brisk trading amidst heightened volatility. Swings of over 400 points are becoming a norm for the Nifty. The week ended was one of the most difficult week for traders as markets have oscillated sharply on both the sides. The alternate bouts of buying and selling perplexed market participants as to the primary trend of the index. On the option front, maximum Call OI (open interest) was at 17000 then 16300 strike while maximum put OI was at 16000 then 15800 strike. Implied Volatility (IV) of Calls closed at 22.07 per cent, while that for Put options, it closed at 22.79. The Nifty VIX for the week closed at 24.56 per cent.

PCR of OI for the week closed at 0.66 lower than the previous week, which indicates more Call writing than Put writing during the week. Call writing was seen at 16300 strike while Put writing was seen at 16100 strike suggesting a trading range between 15800 and 16500 zone. Savvy punters predict bounce back in indices from current levels. Volume trading above 16000 in the Nifty and above 34000 in the Bank Nifty may propel them towards 16500 and 35000 levels much sooner than expected. Tech stocks have taken a beating in recent weeks on wide-ranging concerns. With the weakening of rupee, industry observers expect large IT companies to post better than expected results in coming quarters. Buy in the present weakness Infosys, TCS and HCL Tech. After a long hibernation pharma stocks are back in limelight on renewed buying interest. Sharp buying was seen in Dr Reddy's, Sun Pharma, Granules and Biocon. However, caution is warranted on companies facing USFDA inspections. Stock futures looking strong are Ashok Leyland, Britannia, HDFC, ITC, NTPC and TVS Motors. Stock futures looking weak are Astral, Container Corporation, ICICI general Insurance, HPCL, Lupin, and Shriram Transport.