Rate concerns still loom large ahead of Budget, polls

Spooked by sharp selling from FIIs, geopolitical tensions in Europe, rising bond yields in US on the back of probable interest rate hike after US Fed meeting and weak global cues; the domestic markets fell by over 3.5 per cent during the week ended. The BSE Sensex shed 2,185.85 points (3.57 percent) to end at 59,037, while the NSE Nifty fell 638.55 points (3.49 percent) to close at 17,617 points. In the broader market, the BSE Midcap index declined 4.3 percent, while Smallcap indices lost three percent after hitting a fresh high during the week. During the month till date, FIIs sold equities worth Rs15,563.72 crore and DIIs had purchased shares worth Rs 7,430.35 crore.

The Union Finance Ministry is expected to come out with Economic Survey for 2021-22 projecting a growth of around nine per cent for the next financial year. For the current year, the economy, as per the advance estimates of the National Statistical Office (NSO), is expected to record a growth of 9.2 per cent during the current fiscal, which is a tad lower than 9.5 per cent projected by the RBI.

Omicron and elections are two elements that will likely shape Finance Minister's forthcoming budget. With an 'eye' on the upcoming Assembly elections in five states, including the high-voltage battle in Uttar Pradesh; sources indicate that a popular Budget replete with promises and subsidies is on cards. Despite economic compulsions, if no tax rates are increased or no new taxes are introduced, it would be a big relief this year, say market players.

FIIs will give a thumbs down for a subsidy-loaded budget. But for long-term investors, the Budget day by itself is no longer a significant event and look at the budget only to pick up overall trends. All eyes will now be on February 1. It is pertinent to observe that all three major US indices fell for a third consecutive week, continuing their slide to start 2022, with investors worried about the prospect of higher interest rates and their effect on valuations. The S&P 500 and the Nasdaq wrapped up their worst weeks since March 2020; the Nasdaq has fallen for four weeks in a row.

The Dow Jones Industrial Average finished its worst weekly performance since October 2020. Looks like US investors have repositioned their portfolios away from riskier assets to start the year. The prospect of higher rates has particularly hit highflying tech stocks and shares of unprofitable companies, shoving the Nasdaq into correction territory. Meanwhile, oil and yields on government bonds have climbed in 2022. Near-term direction of the market will be dictated by F&O settlement, Q3 earnings, macroeconomic data, expectations over upcoming Union Budget, international crude oil prices, US Fed meeting outcome, Russia-Ukraine geopolitical tensions and other global cues.

Week ahead would witness Q3 results from Larsen &Toubro, Marico, Cipla, Federal Bank, Maruti Suzuki India, Dr Reddy's Laboratories, Kotak Mahindra Bank, PNB, Bharat Heavy Electricals (BHEL), Canara Bank, LIC Housing Finance, RBL Bank, Bharat Electronics, Chambal Fertilisers & Chemicals, Karnataka Bank, HDFC Asset Management Company, InduSind Bank, Ramco Cements, SBI Cards and Payment Services, NTPC, Pidilite Industries, Raymond, SRF and United Spirits Despite weak market sentiment Adani Wilmar is going to launch its initial public offer (IPO) on January 27.

It has set the price band for its public issue at Rs218-230 per share, valuing the company at Rs26,287.82 crore. Adani Wilmar is an equal joint venture between Adani Enterprises and Wilmar International, and the owner of the Fortune brand of edible oils. The next week will be a truncated one as the Indian market will remain shut on January 26 for Republic Day.

Quote of the week: "An investment in knowledge pays the best interest

— Benjamin Franklin

When it comes to investing, nothing will pay off more than educating yourself. Do the necessary research and analysis before making any investment decisions.

F&O / SECTOR WATCH

Ahead of the settlement week and mirroring the weakness in cash market; a sharp selling was seen in the derivatives segment. The market may continue to witness heightened volatility ahead of monthly Futures & Options (F&O) expiry on January 27. On the Option front, Maximum Call Open Interest (OI) is at 18000 then 18500 strike, while maximum Put OI is at 17,000 followed by 17,500 strike. Put writing was seen at 17500 and 17700 strike while meaningful Call writing is seen at 18000 and 17800 strike. Implied Volatility (IV) of Calls closed at 17.30 per cent, while that for Put options closed at 18.32.

The Nifty VIX for the week closed at 17.79 per cent. PCR of OI for the week closed at 0.74. Option data suggests a wider trading range between 17300 and 18200 zones, while immediate trading range is between 17450 and 17850 zones. On the sectoral front, BSE Information Technology index lost 6.5 percent, BSE Telecom index fell 5.8 percent and Nifty Pharma index shed 5.2 percent.

However, the BSE Power index added 2.6 percent. Given the under-penetration of insurance in India and the need to bring a wider gamut of population under the safety net, insurance industry observers expect some major announcements like reduction in GST and selective tax breaks in the upcoming Budget.

Stay invested in insurance counters for present. State-run Convergence Energy Services Ltd (CESL) launched the biggest ever tender worth about Rs 5,500 crore to procure as many as 5,580 electric buses. Seen as a big step in the series of initiatives to fulfill the commitments made by Prime Minister Narendra Modi for making India a 'Net Zero' nation by 2050 and getting closer to achieving Energy Independence by 2047, observers of automobile industry expect a wide range of policy initiatives to improve EV mobility in the coming Budget. Use declines to buy automobile counters.

With heightened volatility in place and recent earnings failing to excite the market, earnings outcomes in the coming week will be a key factor. Expect sharp stock specific moves. Stay light in F&O positions and track rollovers for spotting winners of Budget series. Stock futures looking good Biocon, Godrej Properties, HDFC Bank, Power Grid, Trent and SBI Life. Stock futures looking weak are Bajaj Finserv, Naukri, TechMahindra, TVS Motors, PEL and Zee Entertainment.

Stock Picks

Coromandel International Limited

Coromandel International Limited. Belonging to $5 billion Murugappa Group, Coromandel International Limited is engaged in the manufacture and trading of farm inputs consisting of fertilizers, crop protection, specialty nutrients and organic compost. The company is India's largest private sector Phosphatic Fertiliser and is also the 5th largest Agricultural Chemicals Company. Largest Single Super Phosphate (SSP) Company and pioneers & market leaders in Specialty Nutrients. It's number one organic manure player in India. Developed largest rural retail chain across country. The company's business divisions include fertilizers, specialty nutrients, crop protection and retail. It offers various products in fertilizer segment, including nitrogen, phosphatic and potassic in various grades.

Its specialty nutrients consist of water soluble fertilizer, sulfur products, micro nutrients and organic manure. Its crop protection products consist of insecticides, fungicides and herbicides. Its retail outlets operate as Mana Gromor Centers. It manufactures a range of fertilizers and markets over 3.2 million tons. It operates a network of over 800 rural retail outlets under its retail business across Andhra Pradesh, Telangana and Karnataka. It has manufacturing facilities in Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Madhya Pradesh, Uttar Pradesh, Rajasthan, Gujarat, and Jammu and Kashmir. Buy on declines for target price of Rs1150 in next few months.

The Ramco Cements Limited

The Ramco Cements Limited, formerly Madras Cements Limited, manufactures cement, ready-mix concrete and dry mortar products. The Company operates in two segments: Cement and Power generation from Windmills. It is also engaged in the sale of surplus electricity generated

from its windmills and thermal power plants. The principal product of the Company is Portland cement, which is manufactured in over eight production facilities that include integrated cement plants and grinding units with a total production capacity of approximately 16.45 million tons per annum. Its Dry Mix Division manufactures pre mixed dry mortars, such as plasters, wall putty and tile adhesive. Its Cement Plants are located in Tamil Nadu, Andhra Pradesh and Karnataka. Its Grinding Units are located in Tamil Nadu and Andhra Pradesh. Its Wind Farm Division is located in Tamil Nadu and Karnataka. It's Packing plant, ready mix concrete plant, dry mortar plant and research and development center are located in Tamil Nadu. Buy for medium term target of Rs1450.