Strong Q3 earnings forecast may keep momenutm

The exuberance of the broader market may be tested if the December quarter earnings do not justify the valuations

Renewed FII Buying

• Mkt sustained its outperformance for 2nd week
• Nifty Midcap-100 gained 2.5%
• Nifty Smallcap-100 gained 1.9%
• FIIs made a strong return due to sharp decline in US bond yields and declining

Punctuated by bouts of profit-booking after the benchmark indices scaled all-time highs, the rough first week of year at US markets, expectations over Q3 results and macroeconomic data; the domestic markets exhibited mixed performance and closed on a flat note during the week ended. NSE Nifty ended 0.1 percent lower at 21,710 points, while BSE Sensex ended 0.3 per cent lower at 72,026 points.

The broader market sustained its outperformance for the second straight week. Nifty Midcap-100 gained 2.5 percent, while Nifty Smallcap-100 gained 1.9 per cent. The exuberance of the broader market may be tested if the December quarter earnings do not justify the valuations. In the first trading week of the year, FIIs were buyers while DIIs were sellers. FIIs bought equities worth Rs3,290.23 crore in the week gone by while DIIs sold Rs7,296.50 crore. Observers say FIIs made a strong return in last two months thanks to the sharp decline in US bond yields and declining dollar.

With US Fedlikely to begin cutting interest ratesin next couple of months, FIIs are likely to increase their purchases in 2024 too, particularly in the early months of 2024 in the run up to the general elections. Near-term direction of the market will be dictated by Q3 earnings season, the domestic and global macroeconomic data, global bond yields, crude oil inventories, movement of the dollar index, FII and DII investment activities, the persisting uncertainties in Red Sea, and stock-specific triggers. Analysts expect strong profit growth in industrials, autos and cement, but weak for BFSI, FMCG, IT, chemicals, and consumer services.

The fortunes of the Adani business empire have come full circle in just about 12 months. From January 2023, when short seller Hindenburg Research shocked investors with charges of wrongdoings by the power-to-ports conglomerate, to the latest verdict of Supreme Court on Sebi investigation of the issue; it was a roller coaster ride for Adani Group stocks. Analysts feel that the Hindenburg saga has proved to be a blessing in disguise for the Adani Group as the company has aligned its corporate strategy with the larger, shareholders’ interest.

Quote of the week: The four most dangerous words in investing are, it’s different this time — Sir John Templeton

Follow market trends and history. Don’t speculate that this particular time will be any different. For example, a major key to investing in a specific stock or bond fund is its performance over five years.

F&O/ SECTOR WATCH

Derivatives segment witnessed brisk trading with bouts of profit booking in stocks that have run up sharply in recent times. Stocks from real estate, media and pharma sectors were major gainers whereas, profit booking was noted in the auto, metal and IT stocks. In Nifty weekly options segment, the highest Call Open Interest is at the strikes of 21,700 and 21,800 strikes, whereas on the Put side, the highest Open Interest is at the 21,500 strike. Options data indicated that the 21,800 is expected to be an immediate resistance, while the 21,700-21,500 is the crucial support area. It is pertinent to observe that in the Nifty monthly options segment, the maximum Call Open Interest is at 22,500 strike, followed by 23,000 strike; while on the Put side, the maximum Open Interest was visible at 21,000 strike, followed by 21,500 strike.

For Bank Nifty, the highest Call Open Interest is at the 48,500 strike, while the highest Put Open Interest is at the 48,000 strike. Implied Volatility (IV) for Nifty’s Call options settled at 12.22 per cent, while Put options concluded at 13.37 per cent. The India VIX, a key indicator of market volatility, concluded the week at 13.33 per cent. The Put-Call Ratio of Open Interest (PCR OI) stood at 1.55 for the week. IT biggies TCS (Jan 11), Infosys (Jan 11), HCL Tech (Jan 12) and Wipro (Jan 12) are set to declare their Q3 results in coming week. Industry watchers expect muted results, with an average constant currency (CC) growth of 1.4-1.6 percent in dollar terms.

The October-December period is typically a slow quarter due to the holiday season in the US and European countries, which are the biggest markets for Indian IT firms. Track commentary of the companies and visibility of earnings carefully. Stock futures looking good are Crompton Greaves Consumer, Aditya Birla Capital, ABFRL, Bajaj Finance, Delta Corp, Bajaj Finserv and Shriram Finance. Stock futures looking weak are Astral, Bata, National Aluminium, Escorts, Kotak Bank, PVR Inox,and UPL.

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

Rallis India Ltd

Rallis India Ltd, a Tata Enterprise, has been engaged with Indian farmers for decades and is a pioneer in the agricultural inputs industry. The company has created a distinct identity for itself with its extensive research and development capabilities, delivering innovative products that positively impact the livelihood of millions of farmers in India. Moreover, the sales are spread across 80 per cent of districts in India and products recognised in over 61 countries. The company has expanded from being a pesticide manufacturer to a more diversified player with a relevant presence in the agricultural value chain. It has widened its product portfolio and caters to critical agri-inputs like Soil conditioners, Hybrid seeds, Plant growth nutrients and Plant protection chemicals.

It has established five state-of-the-art manufacturing facilities at Ankleshwar and Dahej (two units) in Gujarat and Lote and Akola in Maharashtra. The company has also built adequate Seed processing and packaging facilities through its own capacity as well as exclusive partnerships in Telangana. It has also set up the Rallis Innovation Chemistry Hub (RICH) facility in Bengaluru. Additionally, the company has intensified its drive toward digitalisation in the manufacturing process, sales and marketing. Buy on declines for medium-term target of Rs475.

Orient Cement Ltd

Orient Cement Ltd is a leading mid-sized cement company in India with a mission to provide high-quality cement products to its customers, with ‘sustainability’ as the core theme. Since its inception in 1979, the company has developed to become a major participant in the cement sector, with an annual production capacity of 8.5 million tonnes.

The company has a strong market presence in the states of Maharashtra, Telangana, Andhra Pradesh, Karnataka, Madhya Pradesh and South Gujarat. It operates with state-of-the-art manufacturing facilities equipped with the latest technological equipment to produce highquality cement products. The product range of Orient Cement includesa diverse selection of cement products, including Ordinary Portland Cement (OPC) and Portland Pozzolana Cement (PPC) with increasing proportion of value-added premium products. Buy for medium term target of Rs500.