Stock-specific movements likely amid corporate results

Strengthened by encouraging domestic macroeconomic data, better progress of monsoon, decent Q1 earnings and sustained inflows from FIIs; the domestic stock market continued its record run during the week, ended with NSE Nifty nearly kissing the 20,000 mark and BSE Sensex shooting past 67,000 points for the first time. The Sensex ended the week with a gain of 0.94 percent or 623.36 points to finish at 66,684.26pts, and Nifty added 0.92 percent or 180.5 points to end at 19,745pts. During the course of the week, the Sensex and Nifty touched fresh record highs of 67,619.17pts and 19,991.85pts. The BSE Mid-cap index added 0.5 per cent and the Small-cap index added 1.3 per cent. FIIs purchased equities worth Rs3,115.26 crore, while DIIs offloaded equities worth Rs776.69 crore. In the current month, FIIs bought equities worth Rs17,697.89 crore and DIIs sold equities worth Rs8,906.19 crore till date.

Triggered by weakness in IT stocks after Infosys slashed its guidance for the rest of this fiscal and muted performance expectation from RIL and HUL, there was some selling pressure on Friday. The biggest influencing factor in the week ahead would be the quarterly earnings of corporates. Large companies like L&T, Tata Motors, Tata Steel, Axis Bank, Bajaj Finance, Asian Paints, Dr Reddy’s Laboratories, Bajaj Auto, HDFC Asset Management Company, Cipla, Shree Cement, Tata Consumer Products, Tech Mahindra, ACC, Bajaj Finserv, Nestle India, NTPC, IOC, Canara Bank, BPCL, SBI Life, TVS Motor, PNB and BEL will report earnings in the coming week.

Another major market mover will be the interest rate decision by the US Federal Reserve on July 26. Most observers expect the US Fed to raise interest rate by 25 bps and then take a longer pause. Apart from US Fed, the European Central Bank (ECB) and the Bank of Japan (BoJ) will also announce their interest rate decisions on July 27 and July 28. IPO market is supposed to see unstoppable action in the coming week comprising of five public issues apart from three listings. The total fundraising via these public offerings would be Rs857 crore, including Rs170 crore by SME (small and medium enterprise) segment. Noida-based hospital chain Yatharth Hospital and Trauma Care Services is the only IPO from the mainboard segment. In the SME segment, the four public issues are from Chennai-based jewellery products maker Khazanchi Jewellers, dyes manufacturer Yasons Chemex Care, polypropylene non-woven fabric maker Shri Techtex and Direct marketing solution provider Innovatus Entertainment Networks. After the fraud played in the IPO of the Synoptics Technologies, investors need to be extra cautious while dabbling in SME segment.

Listening Post: Are You Ready for the Next Market Crash?

Stress brought on by a collapsing stock market fundamentally changes how people make financial decisions. Investing gray beards like to say that ‘bull markets climb a wall of worry’. This one has been sleepwalking up a wall of boredom. As of this Friday, the Sensex has gone up nearly 4,000 points without a significant decline, one of the longest such stretch on record. This past week’s nervousness, set off by the Q1 results of couple of major companies is thus the perfect pretext for investors to think about what they will do when the market takes a serious beating. For, sooner or later, it surely will—and those investors who have honestly prepared for it will stand the best chance of surviving unscathed. In a downturn, you won’t be the same investor that you are now—unless you rely on rules and procedures, rather than willpower alone, to regulate your behavior. The kind of stress brought on by a collapsing stock market fundamentally changes how people make financial decisions. Even a moderate amount of sudden stress can make people more sensitive to losses and indifferent to small gains.

People are then asked to choose between simple gambles with varying odds and different amounts of money at stake. Under stress, participants gravitated toward bets giving them a higher probability of making a smaller amount of money. When gambles paid off, brain scans show, the natural response in the reward areas of the brain was blunted by stress. Exposure to stress makes people more loss-averse and diminishes their overall sensitivity to reward. And if a reward is of low magnitude, [people under stress] often don’t care about it very much. Thus, at the very moment when falling prices make assets more attractive to own, most investors are likely to focus on how much they are losing in the short term—rather than on how much they stand to gain if they hang on for the long term. They are also likely to fall back on emotional—on “habit-based”—decisions. “Stress tends to exacerbate your typical biases”. “If you usually make conservative choices, it will make you more conservative.” And if you typically make risky choices to avoid locking in losses, he says, stress “will make you more risk-seeking.” That helps explain why investors who swore they would never sell often end up fleeing to cash when stocks drop, while others add more to their positions than they ever anticipated.

In calm times, like the markets of the past few months, it’s hard to imagine how you will feel when all the arrows turn to red from green. What’s more, even in the heat of the moment, when your body and brain show the signs of acute stress, you might not be consciously aware of the pressure you are under. So it’s vital to make sure you have procedures in place now to control your future stress. Start by asking yourself where the potential is greatest for nasty surprises. Companies that have rung up a long string of consecutive earnings increases are likely to fall much more steeply than average once their profits falter. If imagining the stock price falling by, say, one-third doesn’t make you want to buy more, then you probably should consider selling now.

Be sure you have set up a spreadsheet or portfolio-monitoring software that displays the value of your overall portfolio more prominently than any individual holding. If you haven’t recently ‘rebalanced’, selling a bit of whatever has gone up the most and adding the proceeds to whatever has gone down the most, now is an ideal time. Taking moderate action now, while markets are still calm, should help you avoid doing something reckless when investing turns suddenly stressful.

Quote of the week: “Know what you own, and know why you own it.”

— Peter Lynch

Do your homework before making a decision. Once you’ve made a decision, make sure to re-evaluate your portfolio on a timely basis. A wise holding today may not be a wise holding in the future.

F&O/ SECTOR WATCH

Ahead of the settlement week, the Nifty index came close to 20,000 level before experiencing a correction. During the past week, the Energy, Healthcare and Media sectors witnessed substantial gains, while the IT index saw a sharp decline. From the option data, it can be observed that the highest open interest for call options in Nifty was at the 19,900 level, followed by 20,000, while for put options, the highest open interest concentration remained at the 19,800 strike. The implied volatility (IV) for call options concluded at 10.88 per cent, while put options closed at 11.35 per cent. The Nifty VIX, a measure of market volatility, ended the week at 11.79 per cent. The Put-Call Ratio Open Interest (PCR OI) settled at 1.37 for the week, indicating positive sentiment of the market participants. Expected range for the Nifty for the week ahead lies between 19,450-20,000 levels. Bank Nifty outperformed the Nifty. Bank Nifty will have strong support levels at 45,500. Both the PSU as well as the private banks logged gains of more than 0.70 percent. For the next week analysts expect Bank Nifty to lead the rally with 46,500-46,700 as possible targets. The major frontline banking stocks like Kotak Bank, ICICI Bank, Axis Bank, SBI and HDFC Bank are well placed with positive bias to pull the index to new heights. Bank Nifty would have the daily range of 45,900-46,700 levels.

Traders are advised to keep a close watch on upcoming major result announcements from heavyweight companies, as this could lead to stock-specific movements in the market.

Stock futures looking good are Ashok Leyland, Berger Paints, ICICI Bank GAIL, ONGC, MCX and Polycab.Stock futures looking weak ACC, Coforge, Dalmia Bharat, Shree Cement, SRF and UPL.

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