Market may consolidate in broader range amid uncertainty

With nervousness surrounding ongoing Lok Sabha election, analysts expect stock-specific action in near term

Spooked by the change in investor sentiment over the outcome of ongoing General Elections, persistent aggressive selling by FIIs and VIX shooting up to 52-week high; the domestic stock markets witnessed a sharp correction from record highs. It is pertinent to observe that while several global markets have rallied to record highs, Indian markets were weaker during the week ended May 10. NSE Nifty closed 1.9 per cent lower at 22,055 points and Bank Nifty ended 3.1 per cent lower at 47,421 points. The sell-off was visible in broader markets with weak market breadth and both the Nifty Midcap and Smallcap indices correcting by over 2per cent and 4per cent respectively. FIIs continued to remain sellers given delays in rate cuts, inflationary concerns, moderation in corporate earnings, and premium valuation. FIIs have been net sellers in May so far and have sold equities worth Rs17,083 crore. It is interesting to observe that, on a net basis, FIIs are still buyers at Rs4,589 crore so far this year. DIIs have bought equities worth Rs19,410 crore. Observers say that FII strategy is to sell India which is expensive and buy China which is very cheap mainly through Hong Kong. The PE ratio in India is more than double the PE ratio in Hong Kong. So long as this ‘Sell India, Buy China’ trade sustains FII selling will weigh on the markets. The situation can change dramatically when clarity emerges on the election outcome. Additionally, nervousness among investors increased due to the ongoing global uncertainties and Lok Sabha election outcome next month.

Market likely to consolidate in a broader range amid the nervousness surrounding ongoing Lok Sabha election. Analysts expect markets to remain in a broader range with stock-specific action in the near term. VIX surged over 25 per cent last week and high-beta sectors faced the brunt of the selling while defensive sectors like FMCG, buoyed by positive earnings reports, performed well. Investors would be watchful of their equity exposure over the next few weeks as any adverse news on the election front could trigger massive sell-off going ahead. Oil prices remain critical for markets with their impact on inflation and the rate trajectory of global central banks including India’s.

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F&O / SECTOR WATCH

Mirroring the weakness in cash market, derivatives segment witnessed an initiation of fresh shorts in last few sessions. While the Nifty experienced a loss of over 1.5 per cent, the Bank Nifty underperformed the Nifty and recorded a loss exceeding 3 per cent. Profit booking was observed in PSU bank, PSE and media stocks, whereas FMCG and auto stocks emerged as the primary gainers. In the options segment, the highest Call Open Interest was seen at the 23,000 and 22,500 strikes, while the highest Put Open Interest was noted at the 22,000 and 21,500 strikes. For Bank Nifty, the highest Call Open Interest was at the 48,000 strike, while the highest Put Open Interest was observed at the 47,500 strikes. Implied Volatility (IV) for Nifty’s Call options settled at 13.97 per cent and Put options concluded at 14.38 per cent. The India VIX, a crucial market volatility indicator, ended the week at 18.20 per cent.

The Put-Call Ratio of Open Interest (PCR OI) stood at 1.13 for the week. On expectations that there could be more downside to come in the forthcoming weeks, Open Interest in Index shorts has increased sharply. Bank Nifty saw a fresh short build up as the decline in price was accompanied by an increase in the cumulative Open Interest. Punters with higher risk appetite can buy Bank Nifty futures currently at the support level of 47,600. Target and stoploss can be at 48,800 and 47,000 respectively. Currently, the increasing India VIX is the primary worry for the market. Traders should closely monitor this indicator because there’s a negative correlation between volatility and the market, indicating limited upside potential in the present circumstances. In upcoming sessions, it’s expected that the Nifty will trade within the range of 21,700 to 22,400 levels. It’s advised not to place undue significance on last Friday’s pause and to maintain a negative bias until the Nifty convincingly surpasses the 22,400 level. The overall sentiment still remains cautious with bouts of intra-day volatility. Stock futures looking good are ABB, Astral, Bharat Forge, Crompton Greaves Consumer, Godrej Consumer, Sun TV and Tata Motors. Stock futures looking weak Asian Paints, Birla Soft, JK Cement, Pidilite Inds, Titan Inds, M&M Finance and Voltas.

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

STOCK PICKS

Crompton Greaves Consumer Electricals Ltd

Crompton Greaves Consumer Electricals Ltd (CGCEL) is one of India’s leading consumer electrical companies, having a rich legacy of more than nine decades in the ECD and Lighting segments. The company manufactures and distributes a diverse range of consumer items, including fans, pumps, and appliances (Water Heaters, Air Coolers, Mixer Grinders, Iron, and Other Small Kitchen Appliances) in the ECD category, as well as lights. Crompton is one of the celebrated players in fans and residential pumps solutions. Crompton acquired a 55per cent stake in Butterfly Gandhimathi Appliances Ltd. and subsequently acquired an additional 26per cent at a price of Rs1,433.90 per equity share through an open offer. The acquisition of Butterfly Gandhimathi Appliances Limited (Butterfly) will accelerate the long-term strategic goal of becoming a key PAN India player in small domestic appliances.

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The merger will enable both the companies to unlock the full potential of the combined businesses, enhance our competitiveness in India’s consumer electrical market and create significant value for all stakeholders. The company has won large orders of solar water pumping system order under the prestigious PM-KUSUM scheme. In the vast Indian agricultural landscape, solar power offers a win-win solution for farmers. It not only tackles environmental concerns by reducing greenhouse gas emissions, but also significantly lowers energy costs, boosting their profitability. Crompton is professionally managed company, which is run by highly qualified and expert professionals. Mutual Funds and Insurance companies hold nearly 83 per cent of equity. Buy at current levels for target price of Rs500 in medium term.