Markets dancing to the tunes of geo-political concerns, inflation

Supported by the merger decision of HDFC twins and the status quo on policy rates maintained by the RBI with a focus on inflation and growth; braving the US Fed's hawkish tone and Ukraine-Russia tensions, the domestic market managed to eke out gains during the week ended. The BSE Sensex rose 170 points to 59,447 points and the NSE Nifty jumped 114 points to 17,784 points. Broader markets outperformed benchmark indices with both the BSE Midcap and Smallcap indices rising more than 3.5 percent.

After hawkish commentary from US Fed, renewed selling was seen from FIIs. FIIs have net sold Rs6,337 crore worth shares during the week, against inflow of Rs5,590 crore in previous week.

With the RBI keeping a close watch on inflation numbers along with growth, especially after higher commodity prices and elevated crude oil prices amid Ukraine-Russia tensions; WPI and CPI data will be an important domestic indicator to keep an eye on. The inflation numbers are expected to remain high after the RBI sharply raised the inflation forecast to 5.7 per cent from 4.5 per cent earlier, citing geopolitical worries between Russia and Ukraine. A higher-than-expected jump in inflation might provoke knee-jerk reactions. Higher inflation triggering a shift in consumption patterns may also hit demand for goods.

In the mid- to upper-income segments, normalisation of behaviour after the third Covid wave is set to shift consumption toward contact-intensive services that were avoided during the pandemic, squeezing growth in demand for goods in FY23. In the coming week, Q4 earnings, the Russia-Ukraine crisis, rising inflation numbers and crude prices will be key areas to focus on for the investors. The key event to focus in the coming week will be the Q4 earnings season that will be kicked off by IT companies. The country's largest IT company Tata Consultancy Services (TCS) will release its quarterly earnings on April 11 followed by Infosys on April 13. Leading private sector lender HDFC Bank as well as ICICI Prudential Life Insurance will disclose numbers on April 16. Investors should prefer stocks that are showing higher strength and closely watch earnings and shuffle their portfolios accordingly. The market will remain shut on April 14 for Mahavir Jayanti and Dr Baba Saheb Ambedkar Jayanti, and on April 15 for Good Friday.

Quote of the week: The four most dangerous words in investing are, it's different this time— Sir John Templeton

Follow market trends and history. Don't speculate that this particular time will be any different. For example, a major key to investing in a specific stock is its performance over five years.

F&O / SECTOR WATCH

On the back of volatility in the cash market and ahead of Q4 results season; the derivatives segment witnessed brisk trading. On option front, Maximum Call Open Interest (OI) was seen at 18,500 strike followed by 18,000 & 17,800 strikes, while Maximum Put Open Interest was seen at 17,000 strike then 17,600 & 17,700 strikes. Implied Volatility (IV) of Calls closed at 17.68 per cent, while that for Put options closed at 18.01. The Nifty VIX for the week closed at 19 per cent, which was slightly lower than the previous week.

PCR of OI for the week closed at 1.42. Looking at option data, punters expect the Nifty to consolidate with support at 17,500 and resistance at 18,100 in the coming holiday laced week. Bank Nifty may remain volatile and witness see-saw moves in broader range of 38750 to 37350 levels. For Bank Nifty, 38200 levels could cap any sharp upside in prices, while 37000 level is likely to provide strong support. Expect sharp stock specific moves in upcoming sessions.

Global major Accenture's numbers indicate good tidings for Indian IT majors and industry sources predict stellar numbers from the large IT companies. Expect good results from midcap IT companies also. IT giants TCS, Infosys, and Wipro are expected to report moderate growth in revenue during the December quarter due to continued higher employee expenses. Sources expect TCS, Infosys, and Wipro to post constant currency (CC) revenue growth in the range of around 3-3.5 per cent quarter-on-quarter (QoQ), while HCL Technologies is expected to post the weakest growth of two per cent on a sequential basis due to negative impact coming in from its products and platforms (P&P) business.

After the RBI Governor's statement that it is for the NBFCs to make their own choice and the central bank after having created a broad framework does not have a role in their restructuring; big non-banking finance companies (NBFCs) backed by industrial houses like Bajaj Finance, Shriram Transport Finance, Tata Capital, Aditya Birla Capital and Mahindra &Mahindra Financial Services have to find a way out of the tightening regulations as the Reserve Bank of India (RBI) is unlikely to ease norms for them to convert into a bank or permitting them to merge into a bank like the way HDFC merged with HDFC Bank. Industry quarters predict surprising large M&A deals in coming months. Use declines to buy large NBFCs.

Outlook for the banking sector is robust due to rapid bounce in credit growth and improvement in balance sheet. Stock futures looking good are Ambuja Cements, Berger Paints, GAIL, Godrej Consumer, ITC, ICICI Bank, Shriram Transport, SBI and SAIL. Stock futures looking weak are ABFRL, Coforge, HDFC, LTTS, Maruti, McDowell, RBL Bank and Zee.

STOCK PICKS

Tamil Nadu Petroproducts Ltd

Tamil Nadu Petroproducts Ltd is engaged in the manufacturing and selling of petrochemical and chemical products, namely Linear Alkyl Benzene, Caustic Soda, Chlorine and Propylene Oxide. The company operates in the Industrial Intermediate Chemicals segment. The company offers Linear Alkyl Benzene in various grades, which include SL-352 and SL-402. The company also offers Ammonium Chloride, Hydrochloric Acid, Hydrogen and Sodium Hypo Chlorite. The company's product Linear Alkyl Benzene is used as a chemical intermediate to form Linear Alkyl Benzene Sulfonate (LAS), which is used as surfactant in detergents and cleaning products. The Linear Alkyl Benzene is used in various application in the manufacture of domestic detergents, institutional and industrial cleaners. With the pandemic around for more than two years now, the awareness on hygiene has improved, causing an increased consumption of detergents and sanitisation chemicals where LAB finds a place as key input. Its Caustic Soda is an industrial chemical, and has applications in textile, pulp and paper, aluminium, soaps and detergents industries. Chlorine, a coproduct of Caustic Soda is widely used in sectors like Vinyl Chloride, Chlorinated Paraffin Wax (CPW), pulp and paper, water purification, chlorinated solvents, etc. Propylene Oxide is an organic, volatile, flammable, colourless liquid compound which is soluble in both ether and alcohol. It is mainly used as the feedstock for various derivative products such as propylene glycol, polyols and other industrial intermediates. It is a chiral epoxide, although it is commonly used as a mixture. The major consumers of the derivatives of PO are in the field of automobile, domestic home appliances and industrial insulation. The company's manufacturing facilities are located at Manali. Buy on declines for target price of Rs200.

UFLEX Ltd

UFLEX Ltd is engaged in the manufacturing and sale of flexible packaging products. The company's segments include Flexible Packaging Activities and Engineering Activities. It also offers a flexible packaging solution to its customers across the globe. Its business consists of aseptic liquid packaging, flexible packaging, packaging films, chemical's business, cylinder business, engineering business and holography business. It is also engaged in manufacturing consumer facing products like N-95 masks and sanitizers. It manufactures a variety of flexible packaging films, such as bi-axially oriented polypropylene (BOPP) films, bi-axially oriented polyethylene terephthalate (BOPET) films, cast unoriented polypropylene (CPP) film, metalized films, alox coated films and post-consumer recycled content (PCR) grade polyethylene terephthalate (PET) films asclepius.

It offers finished packaging to a range of products, such as snack foods, candy and confectionery. The Engineering Business of the company has been manufacturing high-end machines in the segments of converting and packaging, like CI Flexo Printing, Rotogravure Printing, Form-Fill-Seal, Pick-Fill-Seal, Wrapping, Pouch making, Slitters to complete the gamut of packaging (liquid, aseptic, solid, granular) and also recycling of flexible packaging waste.

Chemicals Business of UFLEX manufactures liquid inks (solvent &water-based); laminating adhesives (water-based, solvent and solvent-less); ink binders, Polyols and specialty coatings (UV/UV-LED/EB) for flexible packaging, monocartons &graphic arts, labels and paper board segments of the Packaging Industry. Signifying a highly successful year, the Aseptic Liquid Packaging from UFLEX took a quantum leap to double its production capacity at Sanand facility from 3.5 billion packs to 7 billion packs to cater to the growing global orders and to diversify its regional presence in India. Buy for target price of Rs1,000 in next few months.