Sector & stock-specific trading likely

Buoyed by healthy macroeconomic numbers including June quarter GDP numbers, manufacturing PMI scaling a three-month high of 58.6, auto sales for August zooming to record highs and August GST collections; the domestic stock markets posted positive gains after trading in the red for five straight weeks. BSE Sensex jumped over 500 points to 65,387 and NSE Nifty climbed 170 points to 19,435 points. The broader markets continued their outperformance, with the Nifty Midcap-100 and Smallcap-100 indices rising 2.5 percent and 4.4 percent respectively. FIIs were net sellers in August to the tune of Rs20,621 crore in the cash segment, after significant buying in previous three months. On the contrary, DIIs compensated the FII outflow by buying shares to the tune of over Rs25,000 crore in August. FIIs can turn net buyers in India if the US Fed does not hike interest rates in the upcoming monetary policy, with the latest jobs report from the US indicating slowness in the US economy. The rupee was down slightly against dollar week on week. In the previous week, the rupee failed to capitalise on the weakness in the dollar index amid persistent demand from importers. The movement of crude oil prices is likely to impact the economies and thereby, the stock markets. Brent crude futures gained more than 5.5 percent to $88.99 a barrel and WTI crude oil jumped 7.5 percent to $86 a barrel. Market participants will closely watch the oil price move as higher oil prices are always a risk for oil importing countries like India. US jobs report and China economy boosters to dictate commodities next week. Announcement of Special Parliament Session in the third week of current month increased political temperature. Any surprising news regarding early General Elections may spook the markets. US markets will remain closed for trading on Monday on account of the Labour Day Holiday. Expect the market to trade in a range with sector- and stock-specific actions as the broader market momentum remains positive.

The primary market will see three companies in the mainboard segment launching their IPOs worth Rs1,350 crore. Stainless steel-based products maker Ratnaveer Precision Engineering, healthcare services provider Jupiter Life Line Hospitals and EMS. In the SME segment, Mumbai-based bulk packaging solutions provider Kahan Packaging, Sahaj Fashions,Mono Pharmacareand CPS Shapers will open their public issues coming week.

Listening Post: What Happens When Stocks Only Go Up.? Losing your fear of bear markets can lead to complacency—and new risks

Bear markets haven’t gone extinct. They’ve evolved into teddy bears. That’s what some investors seem to believe—and who can blame them? The stock market used to take years, sometimes decades, to recover its prior peak after the start of a bear-market decline. After Covid meltdown, however, stocks regained record highs in only few months. Recoveries to previous highs have typically taken almost three years, often much longer. Nobody likes losing money and waiting for ages to get it back. Then again, that kind of pain can be a blessing in disguise, by chastening investors who otherwise might take risks they ought to avoid. While the stock-market decline of 2020 was fierce, with a 34 per cent loss, it was also one of the shortest in history. In February 2020, before the pandemic had fully hit home, many investors estimated the odds of such a bear market at an average of only four per cent. By April, just after the Nifty had fallen by one third, their expectations that the market would plunge again in the coming year nearly doubled to eight per cent. Those fears swiftly faded. By last December, investors estimated the probability of another crash in the ensuing 12 months at only five per cent. That was slightly lower than their average estimate during the three years before the pandemic. It’s as if the speed of the recovery had erased the pain of the decline, or made a recurrence seem even more improbable. Just like that, a grizzly bear turned into what feels more like a teddy bear. That complacency takes a toll, who tend to be cautious. They also tended to turn around and buy back much of the stock they had just sold—but not until prices had already shot above the previous lows. Investors elsewhere seem to have concluded from the swiftness of the recovery that stocks aren’t risky at all. After last spring’s rebound, many declared Stocks only go up so often that it began to seem like a magic incantation. And, for the past year, just about every stock has gone up. None of that means, however, that grizzlies have forever been transformed into teddy bears. This isn’t the first time people have thought that bear markets had been rendered extinct. The best way not to be overwhelmed by fear during a bear market is to retain a trace of it in bull markets, too.

Quote of the week: Don’t guess when the market is top. Let the market prove it is top. Don’t guess when the market is bottom. Let the market prove it is bottom. By following definite rules, you can do this.

F&O / SECTOR WATCH

On the back of good macroeconomic data and short covering; the settlement week witnessed record volumes in the derivatives segment. Nifty closed in green after five consecutive losses on weekly chart. Rollovers in Nifty futures declined at 78 per cent (last month 84%), in line with last 3-month average of 77 per cent. On other hand, market wide rollovers stood at 91 per cent (last month’s market wide 91%). Rollover cost of carry is at 0.48. Analysis of option data for the Nifty shows visible put writing at 19,300 strike, where the highest Put Open Interest was recorded at 19,300 points followed by 19,400 strike. Conversely, Call writers seemed less active in the Nifty, with the highest Open Interest at 19,600 strike followed by 19,500 points. In Bank Nifty, the highest Call Open Interest was observed at 44,500 strike, followed by 45,000 strike. On the Put side, the highest Call Open Interest was noted at 44,000 strike followed by 43,900 points. Implied Volatility (IV) for Nifty Call options settled at 10.42 per cent, while Put options concluded at 10.89 per cent. The Nifty VIX, a measure of market volatility, ended the week at 12.06 per cent. The Put-Call Ratio of Open Interest (PCR OI), standing at 1.44 for the week, indicated a higher inclination towards Put writing over Calls. A rebound in India VIX could be expected in the coming weeks. Nifty’s trading range will be between the level of 19,200 and 19,600. Stock specific buying can be expected ahead. Buy on dips is recommended as long as the Nifty trades above 19200 levels. There is one important change that is happening - beginning next week, Bank Nifty’s weekly options expiry is being moved to Wednesday. Until now, both Nifty and Bank Nifty’s weekly options expired every Thursday. But from now on, Bank Nifty Options will expire/settle every Wednesday and Nifty on Thursday. Passenger vehicle sales in India rose to a new monthly record in August, fuelled by launches in the SUV segment and improved production ahead of the festive season that started with Onam last month. August was the eighth month in a row when car dispatches to dealers have been more than 300,000 units, as buyers have been lapping up new models amid strong economic growth. Use declines to buy M&M and Maruti. Stock futures looking good are NALCO, LTIM, SAIL, Navin Fluoro, RIL and Maruti. Stock futures looking weak are ABB, Escorts, Kotak Bank, GMR Infra, HUL, BPCL and Vedanta.

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