Mkt may see some consolidation

Sustained by consistent buying from FIIs, healthy progress of the monsoon, good quarterly earnings, improved domestic and global data; the domestic stock markets extended gains for a third consecutive week. BSE Sensex rose 1.19 percent, or 780.45 points, to finish at 66,060.90 points and NSE Nifty gained 1.20 per cent, or 232.7 points, to end at 19,564.50 points. Both benchmark indices scaled new historic highs during the week. The Sensex hit 66,159.79 and the Nifty 19,595.35 points. Broader markets were also exuberant and the BSE Small-cap and Mid-cap indices gained 1.7 per cent and 1.3 per cent. The market continued to get booster doses from FIIs who bought shares worth Rs5,417.78 crore, while DIIs sold equities worth Rs1,251.29 crore. In this month, till date, FIIs have bought equities worth Rs14,582.63 crore and DIIs sold Rs8,129.50-crore worth of shares. Supported by FII inflows and easing of the US Fed rate hike worries; the Indian rupee added 57 paise to end at 82.17 against dollar. CPI rose for the first time in five months to 4.81 percent in June after hitting a 25-month low of 4.25 percent in May. The rise was mainly due to a surge in food prices and is expected to persist in July.

‘Tomato Thalinomics’ has become a discussion point. Tomato prices have become a sore point for people, while other vegetables have also become costlier. Sustained high prices will likely push inflation higher sending RBI policymakers in a spot who are trying hard to bring inflation to the 4 per cent level. After initial fears of deficit monsoon, the monsoon has been excessive in several parts of North India, leading to flash floods, landslides and fatalities.

In the near term, the market may see some consolidation, while Q1 earnings will dictate individual stock moves. Global and domestic cues, FII and DII activities, progress of monsoon, and crude oil prices will be the key factors that will drive the markets in the coming days.

Listening Post: Finding Your Balance in a Topsy-Turvy Market

Taking calm, contrarian action in a crazy world is a great way to restore balance—not only to your portfolio, but to your frame of mind. The market wisdom that sounds the easiest can be the hardest to follow. Take buy low, sell high.

Let’s say your target is to keep 60 per cent of your assets in stocks and 40 per cent in other asset classes, and you were at that 60/40 mix of mid-February. By late March, stocks had fallen sharply while interest rates were rising. That would have left you about 50 per cent in stocks and 50 per cent in other assets like FDs—a sizable divergence from your 60/40 target. To get back to 60 per cent stocks and 40 per cent of other assets, you could buy some stocks, sell some other assets or both. The debate over how and when to do that is endless. Some analysts advocate adjusting back to your targets annually; others say semi-annually, quarterly, monthly, even daily. Still others argue that you should rebalance only when your asset mix is at least 1% or 3% or 5% or 10% off your targets.

There’s no way to tell in advance which rebalancing method will turn out best, because the results depend on how much your assets fluctuate in the future and how different their returns will be. What’s more, the variations in historical results across rebalancing techniques are surprisingly small, and it is found that “the frequency and magnitude don’t make much of a difference.

“As long as you have a process and you stick to that process, you will benefit.” With interest rates reaching a peak, many investors have asked me whether rebalancing out of stocks and into bonds makes sense anymore. (Stocks are up almost 20% in the past five weeks, so some who rebalanced into stocks in March are wondering whether they should now rebalance into bonds.) It makes sense to sort your assets into a few buckets: stocks, high-quality bonds, cash, real estate, perhaps one or two for other.

Set target ranges for each bucket. Once or twice a year, or whenever market moves push an asset at least 5% above or below your target range, you should rebalance. You can do some of your buying by redirecting dividends or interest payments from the holdings you’re seeking to reduce.

In the end, rebalancing is unlikely to raise your return. The point of investing isn’t to get the best return, though; it’s to get the best return at the least risk. And rebalancing lowers your risk by making sure you aren’t overexposed to stocks right before a downturn. It also keeps you on a disciplined path toward your goals. The investment analyst Benjamin Graham wrote that the chief virtue of rebalancing is that it gives investors something to do.

Whenever markets move sharply up or down, it’s human nature to want to take action. Rebalancing helps investors to siphon off some of that energy, Graham argued, while directing it into decisions “exactly opposite from those of the crowd.” Taking calm, contrarian action in a crazy world is a great way to restore balance not only to your portfolio but to your frame of mind.

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 or bond fund is its performance over five years.

F&O/ SECTOR WATCH

With benchmark indices scaling record highs, derivatives segment witnessed heightened robust trading during the week ended. Option data clearly indicates that 20,000 can be a possibility for the Nifty in coming weeks. The maximum weekly Call Open Interest was at 20,000 strike, followed by 19,600 and 19,700 strikes. The maximum Put OI was at 19,500 strike, followed by 19,400 and 19,300 strikes. The Implied Volatility (IV) for Call options concluded at 10.21 per cent, while Put options closed at 11.07 per cent. The Nifty VIX, a measure of market volatility, ended the week at 10.94 per cent. The Put-Call Ratio of OI (PCR of OI) settled at 1.31 for the week. India VIX, which measures the expected volatility for the next 30 days in the Nifty50, dropped by 2.33 per cent from 10.94 to 10.68 levels, the lowest level since December 2019. Low VIX means low volatility thus making the trend more favourable for bulls. In near term, 19,600-19,700 can act as a resistance area for the Nifty, while the 19,500-19,300 is expected to be support area. For the Bank Nifty, 20-day SMA (Simple Moving Average) or 44,500 would be the trend decider level. Above the same, the index could retest the level of 45,250-45,600. On the other side, below 44,500 the Bank Nifty could slip till the 50-day SMA or 44,000 points. Among the sectors, IT and Metal were the primary gainers during the week, while financial services and consumer durables faced downward pressure.

RIL has fixed July 20 as the record date to determine eligible shareholders for allotment of shares.

Under the demerger, shareholders of RIL will get one share of Reliance Strategic Investments for every one share held in the conglomerate. For the upcoming week, it is expected that market is likely to remain buoyant and move towards new all-time highs. Traders are advised to keep focus on stock and sector-specific moves as index may remain volatile once again and may witness some choppiness as well.

Stock futures looking good are Federal Bank, ICICI Bank, TVS Motors, SAIL, NMDC and Wipro. Stock futures looking weak are Atul, Deepak Nitrate, Jubilant Food, Navin Fluoro, Tata Chemicals and PVR Inox.

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

Planning Board)