Macro data will steer mkt direction

It is pertinent to observe that even in the face of a 33% correction in small-caps last year, many investors remained resilient and did not panic, and suggesting that fear of market downturns may not drive them away

Spooked by the hawkish tone of the US Fed hinting higher interest rates next year, aggressive sell-off by FIIs, sharp fall in index heavyweights like HDFC Bank, rising diplomatic tension between India and Canada and weak global cues; the domestic stock market posted one of the biggest weekly losses in last two years. BSE Sensex plunged 1,830 points or 2.70 per cent to 66,009 points, while NSE Nifty tanked 518 points or 2.57 per cent to 19,674 points. Shaken by the nervousness in frontline stocks, the correction was also seen in broader markets. Both the Nifty Mid-cap and Small-cap indices fell 1.7 per cent and 2.5 per cent. FIIs net sold Rs8,681 crore worth of shares in the cash segment for the week ended, taking the total monthly outflow to Rs18,261 crore. However, with China getting less attractive, over a period of time, FIIs don’t have any option, but to come back to the Indian markets say observers.

The US 10-year treasury yields jumped 4.49 percent during the week, the highest level since 2007 and the US dollar index, which measures the value of US dollar against the basket of world’s leading six currencies, jumped to 105.58 levels, the highest closing since November 2022, continuing uptrend for tenth consecutive week.

The JPMorgan’s decision to include Indian government bonds in its bond index is viewed favourably. Rising international crude oil prices, attributed to expectations of increased demand in China, coupled with supply cuts, contributed to inflation concerns.

Near-term direction of the markets will be dictated mostly by global cues (including US GDP numbers, bond yields) due to absence of major domestic data points and the F&O settlement. It is pertinent to observe that even in the face of a 33 per cent correction in small-caps last year, many investors remained resilient and did not panic, and suggesting that fear of market downturns may not drive them away. Same may be the case in current scenario say some stock brokers. Despite weak sentiment in the secondary markets, momentum in the primary market is expected to continue with 16 IPOs worth nearly Rs4,000 crore lined up to open for subscription next week including JSW Infrastructure, Updater Services, Valiant Laboratories and Vaibhav Jewellers. The SME segment continues to witness a flood of IPOs from several unknown entities with doubtful credentials. Caution is the watch word.

Listening Post: Why Many Investors Keep Chasing the Wrong Stock Market

Trying to make up for stock market losses can be costly, impulsive and misguided and the Nifty or the Sensex is not necessarily your best metrics. If you’re like most investors, you can probably guess roughly where the Nifty is at a given moment, but that doesn’t mean you know how well the stock market is doing. That can obscure your view of your own performance and distort your decisions. This year’s stock market is split in two. Underperformance of large-caps and significant outperformance of mid-caps and small-caps.

In 2023, Nifty and Sensex are up only 8.5 per cent, while the broader Mid-cap and Small-cap indices are up by whopping 26.5 per cent and 31 per cent till date. That’s the widest year-to-date (YTD) performance gap between the two segments on record in several years. Focusing on the tepid returns of the Nifty or the Sensex could make you feel you’re even farther from recovering the losses of 2022 than you really are. You might be tempted to throw a Hail Mary pass, or take on extra risk, to try to catch up to the hottest players in the stock market. It’s not hard to see why. Fixating on your underperformance may lead to what psychologists call loss chasing, or taking bigger, more-frequent and more-impulsive risks in the effort to get back to break-even. That doesn’t necessarily mean buying more of whatever’s gone down the most.

Often, it means buying whatever you think can go up the most — even (or especially) if it’s a long shot. Neuroscience experiments have shown that choosing to quit chasing your losses can fire up the same part of the brain that registers pain and disgust. When you hunt what you hope will be gains, it hurts to admit that what you’re likely to catch is more losses. No wonder it can be hard to stop this behavior — even if you realize your persistent bad bets are putting you deeper in the hole. Like so much of investing, making peace with your losses is a mind game. How you define a loss depends on your reference point: Is the value of your investment down from its peak price? From the end of 2022? from the lows of March 2020? from five years ago? from 10 years ago? from what you originally paid for it? A loss that seems severe over one measurement period may feel lighter when you look at it over a different horizon; the farther back you measure, the better. You might not be so far behind the market once you change your reference point. Before you start loss chasing, be sure to ask whether what you have is a loss at all.

Quote of the week: “The stock market is filled with individuals who know the price of everything, but the value of nothing” — Phillip Fisher

That is another testament to the fact that investing without an education and research will ultimately lead to regrettable investment decisions. Research is much more than just listening to popular opinion.

F&O / SECTOR WATCH

Ahead of the monthly F&O settlement week, sharp volatility was seen in the derivatives segment. While the Nifty experienced a decline of over two per cent, Bank Nifty fell by more than three per cent. The maximum Call Open Interest in the Nifty was visible at 19,800 strike, followed by 20,000 & 19,900 strikes. Maximum Put Open Interest was seen at 19,000 strike, followed by 19,700 & 19,500 strikes. In the Bank Nifty, the 45,000 strike exhibited the highest Call Open Interest, closely followed by the 45,200 strike. On the Put side, the 44,500 strike held the highest Open Interest, followed by 44,000 points.

In terms of Implied Volatility (IV), Call options for Nifty settled at 9.72 per cent, while Put options concluded at 10.63 per cent. The Nifty VIX, which serves as a gauge of market volatility, closed the week at 10.82 per cent. The Put-Call Ratio of Open Interest (PCR OI) stood at 0.87 for the week. The prevailing sentiment suggests considering a sell on rise strategy, provided Nifty trade remains below the 19,800 level.

Techies suggest that 19,500 is expected to be critical support in near term, followed by 19,000, whereas the near term resistance may be at 19,800-20,000 levels. Profit booking was evident across the board, with notable losses in the private banks &financial services, metal and pharmaceutical sectors. After modest outperformance in recent weeks, the Indian Tech majors might react to the Accenture earnings in the coming week. It is pertinent to observe that during the last quarterly performance, Accenture earnings were actually lower than estimates as well as the guidance was not that optimistic and similar was the case with the Indian IT majors. JP Morgan Chase & Co has announced it will include Indian government bonds to its emerging markets bond index from June 2024, a much-anticipated move which could attract more foreign flows into the domestic government securities market. The move can potentially attract about $25 billion into the country, as per analyst estimates. PSU Banks may continue to outperform private banks.

Stock futures looking good are Berger Paints, Jubilant Food, LIC Hsg, MCX, TCS, Tech Mahindra and Titan. Stock futures looking weak are Ambuja Cements, Glenmark, Kotak Bank, Indigo, SBI Cards and Syngene.

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