FII-led upward movement likely

Supported by good corporate earnings, renewed buying from FIIs, better US GDP data, stability in UK politics after election of Rishi Sunak as PM and interest rate hike by ECB; the benchmark indices notched gains of one per cent during the holiday-shortened Diwali week. BSE Sensex rose 652.7 points or 1.10 percent to end at 59,959.85 points, while NSE Nifty added 210.5 points or 1.19 percent to close at 17,786.8 points. BSE Small-cap index added 0.4 percent, while Mid-cap index rose one percent. During the week, FIIs bought equities worth of Rs3,986.25 crore, while DIIs sold equities worth of Rs1,240.47 crore. It is pertinent to note that in the month of October till now FIIs have sold equities worth of Rs4,667.67 crore, while DII bought equities worth of Rs10,384.07 crore.

Market players indicate that the FIIs have mostly covered their short positions and have started building longs on the indices. The positive undercurrent of FII moves may trigger a strong rally yet again towards new all-time highs. The six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das will prepare the report on reasons for the failure to meet the inflation target as well as the remedial measures the central bank is taking to bring down prices in the country.

Ukraine's maritime grain exports were halted Sunday after Russia suspended its participation in a landmark agreement that allowed the vital shipments, blaming drone attacks on its ships in Crimea. The July deal to unlock grain exports signed between Russia and Ukraine and brokered by Turkey and the UN, is critical to easing the global food crisis caused by the conflict. Track the developments carefully.

Near-term direction of the market will be dictated by the outcome of the RBI Market Policy Committee meeting, ongoing quarterly earnings season, monthlyauto sales numbers, macroeconomic data, developments in Russia-Ukraine conflictand the US Fed interest rate decision. Track international crude oil prices and rupee-dollar movement carefully. Volatility of the secondary market has led to a weak IPOs market in 2022. After a brief lull, the IPO market is heading for a busy time, with four firms, including Global Health Ltd, Fusion Micro Finance Ltd, DCX Systems and Bikaji Foods International. DCX Systems, a manufacturer of cables and wire harness assemblies is commanding good premium in grey market.

Listening Post: Sometimes, investors think they know exactly what's coming around the corner. That sort of certainty is often dangerous. Imagine you could know tomorrow's news today. Would that make you a better investor? Say on November 3, the RBI announced rate hike of 0.75 per cent, dashing hopes that inflation would drop. You'd have bet stocks would tank, with a skittish market certain to panic on the news. You'd never have guessed what happened next. However, if markets move up, observers would say thatmaybe people decided the bad news wasn't bad enough to make the RBI raise interest rates even more than the 0.75 percentage point already considered inevitable at its November meeting. Maybe they felt the bad news was less bad than their worst fears.

Who knows? What we can know is that even possessing tomorrow's news today wouldn't assure you of being able to make a profitable trade. That's why it's so important to stick to a long-term plan rather than chasing the latest illusion of certainty.One of Wall Street's favourite sayings is that investors hate uncertainty. What they should hate, instead, is certainty. Just think of all the other things markets have been certain about lately. As recently as late July, market participants were sure that the US Fed, after cranking up interest rates this year, was bound to cut them sharply in 2023. Just about nobody expects that anymore. Not long before that, every analyst had been pitching so-called quality stocks, with high profitability and low debt, as a kind of insurance against whatever the economy might throw at you. Quality stocks have underperformed the Nifty by roughly four percentage points this year. And just think of the cocksure certainty with which gold bugs and bitcoin fans had been proclaiming for years that the precious metal and the digital currency were perfect ways to protect your purchasing power. So far in 2022, with inflation raging, gold is down nine per cent; Bitcoin has lost more than 50 per cent. It isn't only small investors and financial professionals who think they can figure out exactly what's coming. Consider a Sebi recent multipart investigation, which has exposed the shocking extent to which officials of funds and companies trade stocks and other assets and do front-running. The husband of one official, for example, made more than 9,500 trades in a single year, 2020, including stocks, options and short sales, or bets that an asset's price will fall. That's an average of 38 trades each day the markets were open. It's also an extreme example of what happens when you pursue the illusion of certainty. It becomes easy, as you chase the next short-term gain and adrenaline surges through your bloodstream, to imagine that you know what's coming next. Markets don't work like that, though. They don't permit any one of us, no matter how smart or foresighted, to know exactly what will happen. Self-control is a key to investing success, but so is fending off self-delusion. Beliefs that had come to feel like eternal truths—inflation is dead, interest rates will stay lower for longer, there is no alternative to stocks, giant technology companies will never let investors down, and so on—have been blowing up in people's faces. It's precisely at times like these that investors need to be on guard against the next certainty. You don't have to act on every forecast, and the more certain a prediction sounds, the more you should doubt its validity. Any day now, someone persuasive will be telling you, with a high degree of conviction, when inflation has to fade, when interest rates must fall, which industry sector is doomed to fail or sure to dominate.That voice of certainty will be backed by reams of past data. It will feel reassuring. It will make you feel you are not alone. It will tempt you to follow it. And it is all but certain to be wrong.

Quote of the week: "The stock market is filled with individuals who know the price of everything, but the value of nothing."

— Phillip Fisher

That is another testament to the fact that investing without an education and research will ultimately lead to regrettable investment decisions. Research is much more than just listening to popular opinion.

F&O / SECTOR WATCH

Settlement week witnessed surprising trading activity with both broader indices (i.e. Nifty and Bank Nifty) moving inversely in intraday sessions. On weekly basis, Nifty gained more than 1% whereas BankNifty underperformed.On the option front, Put writers are active at 17700 strike followed by 17500, 17600 whereas Call writers are active at 18200 followed by 17800, 17900. Implied Volatility (IV) of Calls closed at 15.67 per cent, while that for Put options closed at 16.85 per cent. The Nifty VIX for the week closed at 16.60 per cent. PCR of OI for the week closed at 1.34 lower than the previous week.Technically both the indices ie Nifty and Bank Nifty still trading above 100-Day Exponential Moving Average on daily charts. For the Bank Nifty, 41800-42000 will act as a resistance zone whereas 40500-40300 act as support. For Nifty, 18000 will act as a psychological level and above this, the 18200 will act as resistance. On downside, support is placed at 17500-17300 levels. At the opening of coming week, the Nifty is likely to see a strong beginning. However, it would be crucially important to see if the Nifty moves past 18000 levels and stays above there. Focus on the index stocks. Two important events viz the US Fed meet and a special MPC monetary policy review meet scheduled during the week. A positive outlook is advised for the coming week. Pharma industry observers are starting to see significantly better capital allocation from the top pharma companies in the last two to three years. Most of the larger pharma companies are debt free and generating asignificant amount of free cash flows. Analysts feel that Pharma is where maybe FMCG was 10 years back in terms of growth opportunity and see a strong moat in domestic pharma in terms of secular long-term growth opportunities. Start accumulating Divi Labs, Laurus Labs and Sun Pharma. Strong trend of consolidation is being seen in the media sector. The top three players will control a significant portion of the market as the economy moves from say $2,200 per capita to maybe $3,000 or $4,000 over the next five years. Media will do very well because a lot of incremental spending will be driven by media and entertainment and these companies are in a sweet spot. Buy Zee Entertainment and Sun TV. Stock futures looking good are Apollo Hospitals, Bharat Forge, CUB, Cummins India, HAL, L&T and Kotak Bank.Stock futures looking weak areABB, Aarti Inds, Mphasis, Pidilite, Powergrid and PFC.