Focus on fundamentals as mkts enter higher volatility regime

Tracking global cues, the ongoing geopolitical tensions, elevated crude oil prices, inflation concerns and lack lustre Q4 results; markets fell for third consecutive week. BSE Sensex lost 136 points to close the week at 57,061, and the Nifty fell 69 points to 17,103. Broader market witnessed sharp selling with both the Nifty Midcap-100 and Smallcap-100 indices declining by 1.4 percent and 2.7 percent respectively. FIIs have net sold nearly Rs11,500 crore, taking the total monthly net outflow to Rs40,652 crore in April. They have been heavy net sellers for seventh consecutive month. The sharp sell-off could be attributed to weak global cues after the US Federal Reserve hinted at a 50 bps rate hike in May. Goods and Services Tax (GST) collection soared to an all-time high of Rs1,67,540 crore in April, on the back of better compliance and faster economic recovery. This is the first time the collection has crossed Rs 1,50,000 crore mark.

With the spate of high profile battery fires undermining India's bid to become a leader in EVs, GoI has formed an expert panel to look into the incidents. Companies found negligent will be penalised and a recall of all defective vehicles will be ordered say government sources. Analysts feel that both Russia and Ukraine seem prepared for prolonged conflict that could extend beyond the battlefield. Reports indicate that the new phase of war is likely to have serious repercussions with possibility of a mini WW III. Don't ignore news on this issue say observers. Near-term direction of the markets will be dictated by the US Fed interest rate decision, response to LIC IPO, macroeconomic data, developments on Russia-Ukraine war front and other global cues. Prominent companies like Reliance Industries, HDFC, Britannia Industries, Hero Motocorp, Tata Steel, Titan Company, and Kotak Mahindra Bank will announce results in coming week. Adani Group companies are also slated to announce results in the week ahead. Market players should limit positions and focus on identifying the sectors/themes which are showing resilience amid the consolidation bias. Investors, on the other hand, shouldn't look much into the short-term fluctuations and keep a close watch on the earnings for cues. Markets will be closed for a day on account of Ramzan.

Listening Post

With soaring inflation and rising interest rates fanning worries of a recession, April saw technology-heavy index NASDAQ post the worst month since 2008. The broad selloff has erased trillions of dollars in market value from the tech-heavy gauge, with investors souring on shares of everything from software and semiconductor companies to social-media giants. The Dow Jones Industrial Average also logged its worst month since March 2020.The punishing declines in tech and growth stocks mark a dramatic shift from recent years. Investors have ditched shares of some of the biggest tech companies, which had been stock-market darlings for much of the past decade and propelled the indexes' gains from the pandemic lows. Within just a few months, some of the most reliable winners morphed into losers. Netflix dropped 49 per cent in April. Nvidia fell 32 per cent and PayPal Holdings declined by 24 per cent. All three stocks are down more than 35 per cent in 2022.Worries about the Federal Reserve raising interest rates, soaring inflation and the path of the economy have brought stocks sharply lower from the record levels at which they started the year. Many pandemic-era winners also have come falling back to earth as consumer tastes have evolved since 2020. And recently, earnings season has been dotted with some high-profile disappointments, delivering head-spinning one-day stock moves following the reports.

Markets are going into a higher volatility regime, when fundamentals matter again. The FAANG stocks, consisting of the popular quintet of Facebook parent Meta Platforms, Apple, Amazon.com, Netflix and Google parent Alphabet, have collectively lost more than $1 trillion in market value this month, the most since Facebook started trading in May 2012. Amazon shares fell 14 per cent in single session, their biggest one-day drop since 2006, bringing their losses for the year to 26 per cent. The drama surrounding Twitter is also fading. The company posted its first quarterly loss in seven years—a result that reflected broad economic trends related to a slump in online shopping, higher costs from inflation and supply-chain woes, and market jitters over electric-vehicle start-ups. Yields on traditionally safe government debt have rapidly climbed. These higher yields have dented the allure of tech and growth stocks, making shares of firms whose profits may lie further out in time less attractive. Many investors have grown more concerned about a recession, driving swings across global markets. The war in Ukraine has driven commodity prices higher when inflation has already been at a 40-year high. Meanwhile, the Fed faces an especially tricky path to tame inflation by lifting interest rates while not substantially raising unemployment. The giant swings haven't been contained to just tech stocks. Investors around the globe have been alarmed by the dramatic moves in assets from currencies to bonds. In currency markets, the dollar has been soaring while the yen has been falling. The yen, a typical haven for investors around the globe, recently tumbled to a 20-year-low against the dollar, upending the typical dynamics across global markets and stirring unease among investors. Observers think there's a lot more fear there than is probably necessary.

Quote of the week: "We don't prognosticate macroeconomic factors, we're looking at our companies from a bottom-up perspective on their long-run prospects of returning."

— Mellody Hobson

It's very difficult to predict when the next recession or stock market crash will come, so many of the best investors don't even try. Instead, look for good companies with the strength to make it through the occasional challenging economic environment.

F&O / SECTOR WATCH:

On the back of heightened volatility and market roller coaster ride, settlement week witnessed brisk trading in the derivative segment. Rollovers in Nifty futures were lower at 78 per cent (last month 82 per cent), in line with 3-month average of 77 per cent. However, in value terms they were flat at 17480 crore versus 26709 crore. On other hand, market wide rollovers stood at 93 per cent (last month's market wide 92 per cent) in value terms 196300 crore which is higher than last month 185938 crore. Maximum Call open interest was seen at 18,000 strike followed by 17,300 and 17,500 strikes. Maximum Put open interest was witnessed at 17,000 strike followed by 17,100 and 16,800 strikes. The Put base placed at 17,000 strike should remain crucial support for the index. Implied volatility (IV) of calls closed at 18.45 per cent while that for put options closed at 19.89. The volatility remained on the higher side with India VIX rising by 5.8 percent during the week to 19.42 levels. PCR OI for the week closed at 1.70. From the technical front, 16900-16700 zone is likely to act as strong support for Nifty while 17300- 17400 zone may cap any sharp upside in prices. Overall option data indicates that the Nifty is likely to trade in a wider range of 16,700-17,600 levels in coming days. Auto companies will start reporting their April sales data from early part of coming week. Expect movements in specific stocks. Tata Motors has bagged the largest e-bus government tender worth Rs 5,000 crore.

Use current weakness to accumulate. With wedding season in full flow, two-wheeler makers are expected to show strong recovery in sales during April. The much-awaited IPO of insurance behemoth, LIC, is opening for subscription on May 4. Keep an eye on insurance stocks.Viacom18 Media Pvt., Ambani's local joint venture with Paramount Global, is set to receive 135 billion rupees ($1.8 billion) in a funding round led by James Murdoch-backed Bodhi Tree Systems. On the other hand, Adani Enterprises Ltd. announced that it has established a new media subsidiary, signalling the group's ambitions to tap the growing market. Watch out for a new wave of consolidation in the media sector. Stock futures looking good are Adani Ports, AB Capital, ICICI Bank, Laurus Labs, Sun Pharma and PFC. Stock futures looking weak are Apollo Hospitals, Ambuja Cements, Bharat Forge, Gujarat Gas, TVS Motors and Sun TV.