Markets In Wait N Watch Mode Ahead Of RBI Meet

In the next policy meeting on Dec 6, the RBI could find a via media by cutting the cash reserve ratio (CRR) to 4% from the current 4.5%. That will immediately release one lakh crore of liquidity into the banking system

Witnessing severe bouts of volatile trading amidst Adani Group indictment in the US, the geopolitical tensions, MSCI rebalancing and moderation in FII selling; the domestic stock markets gained for a second consecutive week. BSE Sensex added 685.68 points or 0.86 percent to close at 79,802.79 points, while NSE Nifty rose 223.85 points or 0.93 percent to finish at 24,131.10 points. However, the broader indices extended their outperformanceover the main indices for the second consecutive week. The BSE Midcap and Smallcap indices added 2.3 percent, five per cent, and 1.6 per cent, respectively. On the sectoral front, the Nifty Media index added 5.5 per cent, Nifty PSU Bank index rose 4.7 per cent, Nifty Oil & Gas index went up four per cent, and Nifty Energy index added 2.6 per cent. On the other hand, Nifty Auto and Information Technology indices shed 0.5 percent each. FIIs extended their selling with sale of equities worth Rs5,026.77 crore, while DIIs bought equities worth Rs6,924.78 crore. It is pertinent to note that in the month of November, the FIIs sold equities worth Rs45,974.12 crore and DIIs bought equities worth Rs44,483.86 crore. GDP growth of just 5.4 per cent in the July-Sept quarter has triggered shock waves in policy circles, markets and industry. At 5.4 per cent it is the slowest growth in seven quarters - i.e. since Oct-Dec of 2023.

The number looks much worse when juxtaposed with expectations. It is important to recall that as recently as Oct 9, during the monetary policy announcement, the RBI was confident of a 7 per cent growth in the second quarter. The Q2 earnings of Nifty companies grew by just 4 per cent, and this was the second straight quarter when the Nifty earnings grew in low single digits. Macro data like IIP and the core sector have been in the low single digits for the past 4 months. The Q2 GDP data puts RBI in a very uncomfortable position on Dec 6 when they announce the monetary policy. Given that the inflation-targeting framework requires them to bring inflation to 4 per cent (+/-2%), it can hardly cut rates when the last available inflation number at 6.2 per cent is above the upper limit of its target range of 2-6 per cent. In the next policy meeting, the RBI could find a via media by cutting the cash reserve ratio (CRR) to 4 per cent from the current 4.5 per cent. That will immediately release one lakh crore of liquidity into the banking system. On the global front, geopolitical tensions, particularly the Russia-Ukraine situation, remain a concern. Despite the small recovery in the last fortnight, there is no firm trend visible due to lack of fresh positive triggers. Observers expect the market to continue making a sideways movement for next few weeks so that the earnings catch up with the valuations.

Be prepared to invest in a down market and to get out in a soaring market, as per the philosophy of Warren Buffett.

F&O/ SECTOR WATCH

Witnessing a heightened volatility triggered by allegations on Adani Group in a US Court, the settlement week saw brisk trading in the derivative segment. Rollovers in Nifty futures improved at 79 per cent (last month 73%), above 3-month average of 76 per cent. On other hand, market wide rollovers stood at 91 per cent (last month’s market wide 89%). Rollover Cost is at 0.54 (above 3-month avg. of 0.52); Nifty cost at 0.89 (above last 3-month avg of 0.55). This signals strong momentum for the December series. Similarly, the Bank Nifty’s December rollover rate stands at 76.82 per cent, which is up from last month’s 69.36 per cent and above the three-month average of 68 per cent. This suggests a robust momentum for Bank Nifty as well, compared to the previous series. Rollover is a trading activity where trader moves their position from current expiry to the next expiry.

The activity is done by selling the bought position and buying it again in the next expiry for every Buy position. Similarly, Buyback the sold position and Sell it again in next expiry for every sell position. Looking at Nifty’s option data, the highest Call Open Interest was observed at the 24,500 and 24,300 strikes, while Put writers were at the 24,000 and 23,800 strike. For the Bank Nifty, significant Call Open Interest was at the 52,500 strike, while for Put Open Interest concentrated at the 52,000 and 51,000 strike. Implied Volatility (IV) for Nifty’s Call options settled at 13.59 per cent, while Put options concluded at 15.37 per cent. The India VIX, a key indicator of market volatility, concluded the week at 15.21 per cent.

The Put-Call Ratio of Open Interest (PCR OI) stood at 0.82 for the week. For the upcoming sessions, sentiment remains positive as long as the Nifty stays above the psychological level of 23,800. Sectors to watch in December series are Mid Cap Pvt& PSU Banks, Capital Goods, Power, Pharma and Midcap IT. Monthly auto sales numbers to trigger heightened activity in select auto stocks. Stock futures looking good are Divi Labs, L&T, Syngene, HUDCO, NTPC and United Spirits. Stock futures looking weak are ACC, Delhivery, JSW Steel, ICICIGI, MFSL and Tata Power.

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

STOCK PICKS

Thirumalai Chemicals Ltd

Thirumalai Chemicals Ltd is engaged in the manufacturing of phthalic anhydride, maleic anhydride, fumaric acid and fine chemicals. It operates through the manufacture and sale of organic chemicals segment. The company is ranked among the world’s largest producers of Phthalic Anhydride and in fact is the second-largest producer of Phthalic Anhydride in India. It is also the largest producer of Fumaric Acid and Maleic Anhydride in India and in Southeast Asia. The company is sole producer of Malic Acid in Southeast Asia. Its product, phthalic anhydride, is used in the manufacturing of unsaturated polyester resins (UPR), which are commonly used in fiberglass-reinforced plastics. Phthalic anhydride also has applications in the production of herbicides, insecticides, insect repellents, fire retardants, polyester polyols, and rubber scorch inhibitors. Its malic acid is used in the manufacture of skin and dental care products and can be used in a number of technical applications, such as electroplating and metal cleaning.

The fumaric acid products are used in the manufacturing of medicines, drinks, food, animal feed, cleansing agents, unsaturated polyester, alkyd resins, and printing inks. Its diethyl phthalate (DEP) is used to make plastics more flexible. The company isconstructing a new 90KTA phthalic anhydride plant, signifying a marked scaling-up in production capabilities and also establishing a 40KTA plant in the US, dedicated to Maleic Anhydride, as well as its downstream products. Buy on declines for medium term target of Rs600.