Market may consolidate this week

Spooked by the resurgence in Covid cases in some parts of globe, fears of recession in key economies across the world, expectations of further rate hikes by US Fed and weak global cues; the domestic markets recorded the biggest weekly loss since June. BSE Sensex slipped below the psychologically crucial mark of 60,000 by nearly 1,500 points to close at 59,845. The Nifty plunged 462 points to close the week at 17,807. The broader markets were not exempt and were also caught in bear trap. Nifty Midcap index declined nearly six per cent and Small-cap index dropped more than eight per cent. It is pertinent to observe that the equity benchmark indices settled in the red for third straight week, falling nearly six percent from their fresh record highs scaled on December 1. The flows from FIIs remained volatile withthe total monthly outflow to nearly Rs8,500 crore. On the other hand, the recent correction has been used by the DIIs, with net purchases of around Rs8,500 crore, taking total monthly inflow at Rs19,000 crore. The Covid situation in China has triggered global concern even though there is a lack of specific data on disease severity, hospital admissions and intensive-care requirements. The fear is that, as before, what happens in China may not stay in China. Some of the measures adopted by the government in the wake of Covid-19 situation in China include expanding vaccine booster coverage for adults, which stands at 28 percent currently, and stepping up genomic surveillance. It has also been decided to issuea fresh advisory in a day or two for states to enforce Covid-19-appropriate behaviour ahead of Christmas and New Year celebrations. The week ahead will mark the end of the calendar year and punters expect a mild pullback rally for propping up of NAVs. The market is expected to consolidate in the coming week, with market players focusing on Covid situation. The last three weeks of the slide have changed the market structure and indications are pointing toward the decline to extend further. Near term direction of the market will be dictated by emerging Covid scenario, macroeconomic data, global crude oil prices, rupee-dollar equation and global cues.

IPO Corner: The IPO market is set to remain busy in the last week of the current calendar year, with two public issues opening for subscription, along with two listings. The IPO of Radiant Cash Management Services will remain open in the coming week too, till December 27. The offer was launched on December 23.The retail cash management services provider aims to mobilise Rs388 crore via a public issue of 3.91 crore equity shares at the upper end of the price band of Rs94-99 per share. Sah Polymers will be the last IPO for the current calendar year, opening on December 30 and closing on January 4. The price band will be declared by the bulk packaging solutions provider on the coming Monday. Technology-driven financial services platform KFin Technologies will list on December 29 as per its schedule. Electronics manufacturing services provider Elin Electronics will also list shares next week. The year 2022 has been great for the primary market as investors saw more than Rs60,000 crore worth of 40 IPOs being successfully closed despite huge volatility in the secondary markets. But these numbers are lower compared to 2021, when a total 65 public issues were launched raising Rs1.31 lakh crore -- a record fund-raising in a single year.

Listening Post: Let's Be Honest: Are You an Investor or a Speculator? With the stock market seemingly setting all-time highs every day till recently, and now prices crumple, this is a crucial time to clarify the difference between investing and speculating. Unfortunately, that distinction—often credited to the great investment analyst Benjamin Graham—has never been entirely clear. Every asset is an investment in some people's hands and a speculation in others'. So it isn't what you buy, but rather why you buy, that determines whether you are investing or speculating. In his classic 1934 book 'Security Analysis' and again in 'The Intelligent Investor' (1949), Graham wrote: "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory (or 'adequate') return. Operations not meeting these requirements are speculative."

I used to regard that description as definitive, but I began to see its flaws a few years ago. Can any analysis ever be thorough enough to promise safety or a positive return? The traditional view, dating back at least to the 19th century, is that an investor buys to capture a predictable long-term stream of cash flow, while a speculator buys to harvest a short-term change in price. But if you purchase 100 acres of raw land and hold it undeveloped for a half-century because you expect the area to turn into a suburb, are you an investor? The property produces no rent or other income. And you can profit only if, decades from now, someone pays you a higher price after inflation. What sounds like an investment is largely a speculation. If you bought Infosys when it first sold shares to the public in 1993 at Rs95 (adjusted for stock splits and bonus issues) and have held it ever since, are you a speculator? The stock has shot up past Rs1,450 a share, with staggering swings up and down along the way. You bought Infosys because you reasoned it would transform the world of software services, and you hold it—even though the stock trades at several times its earnings—because you think the company isn't done with that transformation yet. Your original speculation has grown to resemble an investment. Someone else buying Infosys for a quick turn in the stock price—say, a rise from Rs150 to Rs200 almost 25 years ago, or from Rs1450 to Rs1550 this year—is a speculator. Same asset, same time, different motivations and horizons. It isn't just that the same asset can simultaneously be an investment and a speculation depending on who holds it and why. The same person can be an investor and a speculator at the same time. A recent survey of clients of a very large brokerage house who each traded at least 120 times a year, the discount brokerage found that they restricted their short-term trading to 37 per cent of their total assets on average. When you talk to several investors in person, they'll say, 'I'm not an active trader, I'm an investor who trades. Some active traders "wear that as a badge of honor" and "believe that trading is fun and a part of who they are."

Other investors who trade a small portion of their portfolios regard that activity as only "a means to an end." Benjamin Graham advised strictly segregating your speculations from your investments. The best idea: Set up a mad money account where you can take a flyer, if you must. Limit it to, say, five per cent of your total and never add more. There's an element of the speculator in everybody. So it is important, before committing any money to any asset, to ask yourself why you want to. Picture a continuum running from speculator at the far left to investor at the far right," If you think you are investing, when in fact you are speculating, a collision with reality could knock you off-course.If, with stocks at record highs, you buy an index fund because you think that is a safe way to earn annual returns of at least 10% a year, then you are speculating. If, on the other hand, you buy an index fund knowing that "stock prices are high and future returns will be lower as a result," then you are investing.I would add: If you buy because you are afraid of being left behind should stocks keep booming, you are speculating.

Quote of the week: "With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future."

— Carlos Slim Helu

It's far too easy for investors to lose perspective. Whenever something big goes wrong, a lot of people panic and sell their investments. Looking at history, the markets recovered from the 2008 financial crisis, the dotcom crash, the Great Depression and even the Covid Pandemic, so they'll probably get through whatever comes next as well.

F&O / SECTOR WATCH

Ahead of the settlement week, intense selling pressure was witnessed in the derivatives segment. Nifty slipped below 18,000 level, while Bank Nifty was hammered down by nearly three per cent. The Maximum Put Open Interest was seen at 17,000 strike, followed by 17,500 strike, & 17,800 strike, with Put writing at 17,800 and 17,600 strikes. Maximum Call OI at 18,000 strike, followed by 19,000 & 18,200 strikes, writing at 18,000, 18,100 and 18,200 strikes. Implied Volatility (IV) of Calls closed at 14.08 per cent, while that for Put options closed at 15.58 per cent. The Nifty VIX for the week closed at 15.19 per cent. PCR of OI for the week closed at 0.73. Technically Nifty has slipped back below its 50-day Exponential Moving Average on daily charts and can be seen trading lower with formation of lower bottom pattern. The option data indicated that 17,500-17,800 area is expected to act as a near term support for the Nifty, whereas the resistance area could be 18,000-18,200.

After consolidation, Cement stocks are looking good for medium term. Reports indicate firm trend in prices and improved dispatches. Buy Ultratech, Ambuja Cements and Ramco Inds. On the back of Covid fears, mild pull back was seen in Pharma counters. However, the rally is likely to be short lived one in several counters warn industry observers. Buy Lupin, Sun Pharma and Granules. The calendar year 2022 has been the best year in 5 years for the PSU bank stocks. With a recovery in growth and stable asset quality, there were broad-based gains in the banking pack. The Nifty PSU Bank index rose 53 per cent in 2022, the highest ever in a decade. Use the current weakness to buy into SBI, BoB and Indian Bank. Ahead of Union Budget, GoI spending on Infrastructure sector is witnessing big push. After correction, GMR Infra looks good at current levels for near term target of Rs55. Stock Futures looking good are GMR Infra and Dr Lal Pathlabs, LIC Hsg, JSW Steel, Lupin and Marico. Stock futures looking weak are Aarti Inds, Dixon, Dalmia Bharat, Havells, TVS Motors and Zee Entertainment.