Mixed global cues ahead of mkts

In the near term, on the domestic front, keep an eye on key economic indicators like Index of Industrial Production (IIP) and Consumer Price Index (CPI)

Spooked by a weak US job data raising the risk of a potential global economic slowdown, sluggish auto sales, weather anomalies in some parts of the country having a direct impact on economy and profit booking in richly valued sectors; the domestic stock markets retreated after a strong two-week rally to end 1.5 per cent lower during the week ended. For the week, BSE Sensex and NSE Nifty indices shed 1.5 per cent each to close at 81,183.93, and 24,852.15 respectively. The BSE Mid-cap index shed 1.4 per cent, while the Small-cap index declined one per cent. After consolidating at all-time highs for better part of the entire week ended on the back of consistent FII buying, the markets tanked on global cues over the weekend.

In the first week of September, FIIs invested around Rs11,000 crore in equity through the exchanges and primary market route. In the near term, on the domestic front, keep an eye on key economic indicators like Index of Industrial Production (IIP) and Consumer Price Index (CPI). These data points will provide important cues for the market’s trajectory, especially amid concerns about global economic headwinds. One big positive for the economy is sharp fall in crude oil prices by over 10 per cent. Concerns around lower Chinese demand and signals that Libya’s rival factions could be closer to an agreement to end the dispute that has halted the country’s crude exports have kept oil prices under pressure this week.

However, it is important to observe movement of rupee against dollar. US stock indices posted steep weekly losses after weaker-than-expected data reignited fears about the health of the US economy. The tech-heavy Nasdaq tumbled 5.8 per cent on the week, its worst performance since January 2022. The S&P-500 fell 4.2 per cent, and the Dow Jones Industrial Average was 2.9 per cent lower. The US Fed has already signalled that it plans to cut rates for the first time in years later this month, but whether that will be by a quarter-percentage point or a larger half-point cut isn’t clear.

Stocks often struggle when there is uncertainty around major issues such as monetary policy. It is pertinent to observe that many of the highflying artificial-intelligence (AI) related stocks that have powered stock indexes higher this year were among the hardest hit this week. Nvidia dropped 14 per cent, erasing a staggering $406 billion of market capitalization. It was the largest weekly market value loss from a single company ever. Mega-cap tech stocks are becoming a victim of their own success.

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 or mutual fund is its performance over five years.

F&O/ SECTOR WATCH

Mirroring the sell-off in cash segment, the derivatives segment witnessed fresh bouts of short selling. Both Nifty and Bank Nifty indices corrected by over 1.5 per cent on a weekly basis. Sectorally, major losers included PSU Banks, Energy and Oil &Gas sectors. In an otherwise weak market, the financial services and FMCG sectors outperformed. In the options segment, Nifty highest Call Open Interest is at 25,200 and 25,000 strikes, while for Puts highest Open Interest was observed at the 24,600 and 24,500 strikes. The key level to watch this week is 25,000 zone as it previously served as support based on option data.

For the Bank Nifty, highest Call Open Interest is at 51,500 and 51,000 whereas for Put highest Open Interest is at the 50,000 strike, making it the crucial level to monitor for the upcoming week as support. Implied Volatility (IV) for Nifty’s Call options settled at 12.38 per cent, while Put options conclude at 13.01 per cent. The India VIX, a key market volatility indicator, closed the week at 14.21 per cent. The Put-Call Ratio of Open Interest (PCR OI) stood at 1.61 for the week. Expect the markets to start the fresh week on a soft and tepid note. Chartists say that the zone of 24,500-24,400 will act as crucial support for the index as it is the confluence of the 50-day EMA and 61.8 percent Fibonacci retracement level of its prior upward rally (23,894-25,334). The levels of 25,075 and 25,250 are likely to act as resistance points for Nifty; the supports come in lower at 24,600 and 24,480 levels. Retail sales of passenger and commercial vehicles fell in August from a year earlier as excessive rainfall in several states weighed on consumer sentiment and economic activity, worsening woes for automakers. In the two-wheeler segment, while retail sales grew over last year, it fell 7.29 per cent sequentially, largely due to heavy rainfall and flooding, which disrupted demand in various markets. Sluggish sales have saddled dealers with high inventory levels, currently stretching to 70-75 days, totalling 780,000 vehicles worth Rs77,800 crore. Trim positions in high P/E stocks of the sector. Stock futures looking good are GMR Infra, LTIM, Federal Bank, Marico, SBI Cards, SBI Life and PI Inds. Stock futures looking weak are Aarti Inds, BHEL, Bata, Chambal Fertilizers, Siemens, SBI and NTPC.

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

STOCK PICKS

BANNARI AMMAN SPINNING MILLS Ltd’s

Bannari Amman Spinning Mills Ltd’s principal line of business is manufacturing and marketing of cotton yarn, woven and knitted fabrics, home textiles, knitted garments and processing of fabrics. The company has two spinning units with an installed capacity of 1,45,440 spindles, weaving and home textiles units with an installed capacity of 153 looms, processing unit with an installed capacity to process 5,400 tonnes of fabric per annum, knitting unit with installed capacity to produce 7,200 tonnes of knitted fabric per annum, garment units and 27 Windmills with an installed capacity of 23.40MW green power, which is entirely used for captive consumption making the company a very low cost producer of textiles. The impact of continuously increasing trend of cotton prices resulted in yarn & fabric prices increasing frequently which affected the garment value chain significantly and created uncertainty in the market in FY 2021-22 and first quarter of FY 2022-23. Geopolitical tensions caused by the Russia-Ukraine war had adverse effects on the textile industry as exports came down drastically. The prices of cotton have come down by more than 30 per cent from its peak levels in the last three quarters and the demand scenario has improved significantly as export orders have started flowing from developed economies.

The prospects have further improved with robust domestic demand. The Spinning unit’s production capacity has been increased from about 90 tonnes of cotton yarn per day to about 105 tonnes of cotton yarn per day. Moreover, the company plans to introduce new product mixes for quality sensitive consumers. Home textiles is one of the focus areas for the company. The main products of home textiles are bleached fabric and made-up like bed linen products meant mainly for exports.

The company has installed machines to start Terry Towels production apart from existing products. A portion of fabric produced is transferred to the home textile division for manufacture of value-added products.

Overall, the prospects for the current year are very bright on improvement in demand scenario as well as prices at this point of time. Excellent turnaround performance indicated in the next couple of quarters. Recent preferential issue at Rs62 and the earlier issue in September 2021 indicate promoter’s willingness to make the company debt free in next few quarters. It’s expected that extensions and changes in the PLI Scheme of GoI for the textile industry take place in the next few weeks. Going by the prospects of good FY25 and with Book Value of Rs64, the stock is a good buy for medium term target of Rs150.