Stock-specific moves likely in range-bound trading

Buoyed by the renewed buying of the FIIs, declining inflation, stable rupee, rangebound oil prices and the easing of aggressive rate hikes concerns by the US Federal Reserve; the domestic stock markets extended the uptrend for the fourth consecutive week. BSE Sensex rose 1,075 points to 59,463 and NSE Nifty climbed more than 300 points to 17,698 points. Moving in tandem with the benchmark indices, the Nifty Mid-cap and Small-cap indices also moved up by 1.8 percent and 1.1 percent respectively. FIIs clocked the highest monthly buying since February 2021 and were net buyers of more than Rs14,800 crore in August till date. However, DIIs have taken the advantage of market rally driven by FIIs, to book profits worth Rs4,200 crore in current month, becoming net sellers for the first time since February 2021.

Retail inflation rate, as measured by the Consumer Price Index (CPI), fell to a five-month low of 6.71 percent in July. Even though inflation fell to a five-month low in July, it has now spent 34 consecutive months above the RBIs medium-term target of four percent and seven straight months outside the central bank's 2-6 per cent tolerance range. Though the fall in CPI inflation from 7 percent-plus levels triggered some hopes on moderation of interest rate hike, keen followers of RBI moves expect another Repo rate hike at the end of its next meeting, scheduled for September 28-30. The US dollar index slumped to six-week low amid increasing debate about Fed's monetary policy. Improved risk sentiment also reduced its safe haven appeal and kept commodities at large supported. Trend in the US dollar may continue to be key price determining factor for commodities as market players try to assess Fed's next move. Further cues may come from minutes of Fed's July meeting which will be released next week.

The coming week is a short-trading week with Monday being a trading holiday on account of Independence Day. In the coming week, market will first react to the quarterly earnings of the LIC, ONGC and Hero Motocorp, along with June industrial output and July CPI inflation data on Tuesday.Positive sentiment is expected to continue with focus on global cues. The four-day trading week is likely to see range bound trading marked by stock specific moves.

RakeshJhunjhunwala, the biggest and most vociferous believer in India's potential, both economic and social, passed away on the morning of August 14, the eve of the country's 75th Independence Day. The trader-turned-investor leaves behind a legacy of taking the cult of equity to the masses in his inimical style and a portfolio worth nearly Rs32,000 crore. Gone from our sight, but never from our hearts.

Listening Post: The power of positive thinking returns to markets. It sounds mad to ignore reality and listen only to what you want to hear. But markets work like this for a good reason. The ability of sentiment to influence the direction of markets was on full display in the last few weeks. Investors emerged from deep gloom and managed to find price-supporting rays of light even in clouded news. The most important was in the interpretation of comments by the US Fed Chairman Jerome Powell and RBI Governor. The interest rates would rise further in 2023. The markets tuned all that out. All that market players wanted to hear was about the state of economy. Markets are fighting the Central Banks.Investors were primed to look for good news, because they'd become so glum. The drumbeat of gloom this year drove down prices, but also meant that even-worse news was required to drive them down more. When everything looks grim, the slightest break in the clouds looks like a new day.

Investors had braced for even worse figures than analysts, so it took little to please them. Investors are ignoring the macroeconomic reports and concentrating on the upbeat outlook of individual companies, and together that helped lift the entire market.It sounds mad to ignore reality and listen only to what you want to hear. But markets work like this for a good reason: They care about what is new, not what they were already prepared for. And when investors are pessimistic, they are by definition expecting bad stuff. Surveys suggest that the mood of investors has just begun to improve from a very depressed level reached last month. In the options markets the relative demand for 'Put' options to protect against falling prices is far higher than in the post-pandemic boom, too, albeit somewhat less extreme than last month. Bears still outnumber bulls, according to the old timers. The question is whether investors will continue to look on the bright side. The mood is still pretty down, so it's possible that they will keep finding reasons to buy for a while. But for the run-up in prices—the Nifty is up sharply from its mid-June low; the midcaps have begun to sizzle—to be sustained it will take more than pure sentiment. There's a narrow path that would be great for markets, where slumping global demand and repaired supply chains rapidly lower inflation. If things don't pan out in this way, the recent sentiment-driven rally will peter out and look like just another dead cat bounce, destined to thud back to earth.

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.

Mirroring the strong bullish undercurrent in the underlying cash market, brisk trading was seen in the derivatives segment. The short-term trend of Nifty continues to be positive with range bound action. Expect continuation of sharp swings for the better part of the week ahead and Nifty could test 17,800-17,900 levels during early part of next week. Crossover of the level will put it on course to 18,200 mark. On option front, the maximum Call Open Interest (OI) was seen at 18,000 strike followed by 17,700-17,800 strikes. The maximum Put OI was seen at 17,500 strike followed by 17,000-16,500 strikes. India VIX, which measures volatility in the market, fell by 4.07 percent to 17.61 level on Friday, and was down nearly seven percent for the week. The Option data indicates immediate trading range of 17,300 to 17,800 for the Nifty and a broader trading range can be between 17,200 to 18,200 levels in coming fortnight. Auto, banking and financials, energy, metal, oil & gas and infrastructure stocks witnessed good buying interest, whereas selling was seen in FMCG, select IT and pharma stocks.

Glenmark and other leading generic drug makers like Sun Pharma, Dr Reddy's and Jubilant Cadista have recalled multiple products in US, the world's largest market for medicines because of various issues. Industry watchers remind of past experiences where US FDA observations have triggered sharp falls in the stock prices of some Indian pharma companies. Track the developments carefully. Anti-trust regulator CCI approved the proposed acquisition of Ambuja Cements and ACC by Adani Group-backed Endeavour Investments. Rerating of stocks on cards. Punters have started buying into the counters. Use declines to accumulate. Stock futures looking good are Aurobindo Pharma, Ambuja Cement,ICICI Bank, SBI Cards, Trent and Tata Steel.Stock futures looking weak are Biocon, Coforge, Divi Labs, IPCA Labs, HDFC AMC and PVR.

STOCK PICKS

Karur Vysya Bank

Karur Vysya Bank was started in the year 1916 and has grown over the years into a leading financial institution that offers a gamut of financial services, under one roof, to millions of its customers. The Bank is engaged in providing a range of banking and financial services, including commercial banking and treasury operations. The Bank's segments include Treasury, Corporate/ Wholesale banking, Retail banking and other banking operations. The Treasury segment includes investments in central and state government securities, debt instruments of bank, certificate of deposits, equity shares, mutual funds and security receipts, among others. The Corporate/ Wholesale banking segment includes credit facilities and other banking services provided to corporate and other clients. The Retail banking segment consists of lending and other banking services to individuals/small business customers, other than corporate/ wholesale banking customers. The other banking operations segment includes para-banking activities like bancassurance, third party product distribution, demat services and other banking transactions.The Basel-III CRAR was at 18.98% with CET1 of 16.95%. With revenues of over Rs5,587 crores and the net profit of Rs. 673 crores for FY21-22, the bank is now on the cusp of growing at a much faster clip. The Net NPA is at 3.3%.The bank has been earning profits since inception and has been declaring dividend uninterruptedly.The bank has consistently declared dividends of over 100% or more dividends since 2003-04. Buy on declines for medium term target of Rs125.

Diamines and Chemicals Limited

Diamines and Chemicals Limited is a holding company. The company has been the sole manufacturer of Ethyleneamines in Indian subcontinent for more than two decades. The company is engaged in the business of manufacturing and marketing of organic chemicals compounds and power generation. The company operates through two segments: Speciality Chemicals and Power Generation. The company manufactures a range of Ethyleneamines in India. The Ethylene Amines products are used in various industry segments, such as pharmaceuticals, resins, Textile Auxiliaries, Water Treatment Chemicals, Paints and Adhesives, Chemical Syntheses and Lube Oil Additives. The companyis catering to a large cross-section of Indian manufacturing Industry spread across a wide spectrum of Actual Users: from Bulk Drugs (Quinolones, Antihistamines) to Fungicide – Insecticide, Polyamide resins, Gas Sweetening, Chelants, Textile Auxiliaries, Water Treatment Chemicals, Paints and Adhesives, Chemical Syntheses, Lube Oil Additives, etc.With the addition of new facilities, the company added two more products to its earlier product range viz. Piperazine Anhydrous and Piperazine Solution and has become one of the dominant suppliers of Piperazine to pharmaceutical and Gas Sweetening Application industries. Excellent Q1 results and good visibility of earnings in coming quarters make the stock good buy for target price of Rs750.