Stay invested in fundamentally sturdy stocks

Decoupling from the global markets and buoyed by positive domestic macroeconomic data; Indian equity markets created history during the last week with the Nifty surpassing 18,000 and the BSE Sensex scaling above 61,000 mark. The BSe Sensex scaled above 61,000 mark for first time, rising 1,246.89 points or 2.08 percent to end at record closing high of 61,305.95, while the Nifty crossed the much-awaited 18,000 levels and continued uptrend till 18,350 levels, before closing at 18,338.55 with 443.35 points or 2.48 percent gains. The broader markets also traded in line with the benchmark indices as the BSE Midcap index was up 3.34 percent and Smallcap index gained 1.92 percent. It is pertinent to observe that despite markets creating 'history', FPIs have turned net sellers and pulled out Rs 1,472 crore in the capital markets in October till date.

Tapering of easy liquidity after the US Fed hinted of rate hike sooner than expected, rising crude oil prices and US bond yields and challenges to the Chinese economy are reportedly issues concerning FPIs. Gold exchange- traded funds (ETFs) attracted Rs 446 crore in September and inflow may continue in coming months due to strong demand on the back of festival season in the country. This was sharply higher than the net inflow of ₹24 crore recorded in August. September also witnessed the highest mutual fund SIP inflows, which crossed the Rs 10,000 crore mark for the first time.

Unanticipated increase in power demand, disrupted production and dispatch due to heavy rains as well as inadequate build-up of inventory before the monsoon has resulted in a coal shortfall and possible energy crises. Quick resolution is necessary for the economy to be on track of recovery. Jefferies, one of the leading US brokerage analysed six key components of the economic cycle: Demand for housing, drop in bank NPAs, corporate profitability, interest rates, corporate leverage and capex revival; and has said that the Indian economy is poised for a repeat performance of growth last seen between 2003 and 2010 led by corporate deleveraging and profitability, lower bad assets and demand for housing.

Q2 earnings season will be in full swing in the coming week with results from Ultra Tech Cement, ACC, Hindustan Unilever, Nestle India, Asian Paints, Yes Bank, JSW Steel, TVS Motor Company, HDFC Life, L&T Infotech, Havells India, Jubilant Foodworks, Biocon, PVR, Tata Consumer Products, Reliance Industries, and ICICI Bank are the key ones to release earnings next week. Near term direction of the market will be dictated by Q2 numbers, rising commodity prices triggering inflation, shortage of coal & gas, international crude oil prices, US Fed taper talks and other global cues. Old savvy market players call the present rally a liquidity driven one, some are calling it a greed cycle, but the fact remains that investors have made stupendous returns across stocks irrespective of their fundamentals.

If a correction sets in, the weaker stocks could witness comparatively steeper drawdowns. Investors should, therefore, ride this bull rally with fundamentally sturdy stocks rather investing in shares rising on fluff.

Q2 Results Rumour Mill: Expect the unexpected from RIL. Post results target can be Rs3,000. ICICI Bank to exceed expectations. Can it rally 15% from current levels. In the large midcap, Gland Pharma and Polycab to come out with good quarterly results. In the Smallcap, Lokesh Machines may report 15 times more NP than previous quarter. Promoter buying good indicator.

Quote of the week: The individual investor should act consistently as an investor and not as a speculator.

— Ben Graham

You are an investor, not someone who can predict the future. Base your decisions on real facts and analysis rather than risky, speculative forecasts.

F&O / SECTOR WATCH

Tracking the historic rally in the cash market, the derivatives segment witnessed surge in volumes. Maximum Call Open Interest (OI) was seen at 18,400 followed by 18,500 & 18,300 strikes. Call writing was seen in the 18,900 then 19,100 strike with Call unwinding at 18,200 strike followed by 18,100 & 18,300 strikes. Maximum Put Open Interest was seen at 18,300

followed by 18,200 &17,900 strikes. Put writing was seen at 18,300 then 18,200 &18,400 strikes with Put winding at 18,000, 18,100 and 17,900 strikes.

Implied volatility (IV) of Calls closed at 14.37 per cent, while that for Put options closed at 14.85. The Nifty VIX for the week closed at 16.10%. PCR of OI for the week closed at 1.64. It is interesting to observe that the FIIs' long exposure in the index future stands at 67 percent. On a weekly basis, India VIX increased marginally from 15.65 to 15.77 levels. Option data also indicated that the Nifty could trade in the range of 18,000 to 18,500 in the coming week. Bank Nifty ended at record closing high of 39,340.90. Maximum Call OI was seen at 40,000 strike followed by 39,400 &39500 strikes with Call writing at 39400, 39900 &40000 strikes, while maximum Put OI was seen at 39300 strike followed by 39200 & 39000 strikes, with Put writing 39300, 39200 & 39000 strikes. It is pertinent to observe that the Bank Nifty rallied nearly five per cent in the last six consecutive trading sessions. Observers feel that Bank Nifty can cross the 40,000 mark next week and may even touch 41,000 before Diwali. Results of the largest private sector lender in India HDFC Bank were in line with expectations. Q2 net was up 17.6 per cent on robust interest income with asset quality remaining stable and showing improvement on a sequential basis. Industry watchers expect robust performance from ICICI Bank and Federal Bank also in the week ahead. IDFC First expected to 'surprise' and can touch Rs65 in near term. Stay overweight in the sector.

The festive demand for consumer products and discretionary expenditure are likely to give big fillip to the FMCG and FMEG companies. However, high demand in the festive season, workforce shortage and rising fuel prices are some issues that may strain margins a bit say industry watchers.

Use declines to add ITC, Havells and others. The market will be keenly watching big announcements from RIL related to its telecom, retail, solar and renewable energy businesses. Stock futures looking good are Adani Enterprises, Adani Ports, Axis Bank, Grasim, HPCL, India Cements and Zee Entertainment. Stock futures looking weak are Apollo Hospitals, Cadila Health, Dalmia Bharat, Biocon, SBI Life and TCS.