Time For Investors To Stay On Sidelines

Fed Chair Jerome Powell recently remarked that he hasn’t ruled out or in a December rate cut, signalling that economic indicators will play a pivotal role in shaping the Fed’s next moves

Under the shadow of the US Presidential Election outcome and subsequent rate cut from the US Fed; the domestic stock markets continued to stay tentative over the past five days, trading with a weak undertone. BSE Sensex was down 237.8 points or 0.29 per cent to end at 79,486.32 points, while NSE Nifty index was down 156.15 points or 0.64 per cent to close at 24,148.20 points. The broader indices underperformed the benchmark indices, with BSE Smallcap index falling more than one per cent and the BSE Mid-cap Index fell by 0.5 per cent. Among sectoral indices, Nifty Realty shed more than four per cent, Nifty Media fell 3.2 per cent, Nifty Energy declined three per cent, Nifty Oil & Gas index was down nearly two per cent. Gainers were the Nifty Information Technology index adding four per cent, and the Nifty PSU Bank index rising one per cent. FIIs continued their selling in the month of November also as they sold equities worth Rs14,485.12 crore during the week. On the other hand, DIIs bought equities worth Rs9,239.03 crore. Persistent foreign fund outflows continued to weigh on market sentiment, compounded by weaker-than-expected corporate earnings for the September quarter. The FII selling is likely to continue in the near-term till data indicate the possibility of a trend reversal. If the Q3 results and leading indicators reflect a recovery in earnings, the scenario can change with FIIs reducing selling and even turning buyers. Investors will have to wait and watch for the data. The Indian rupee fell to a record low, reflecting concerns that Trump’s victory could strengthen the US dollar in the coming months. Markets have been in a phase of correction since the Sensex and Nifty hit their all-time highs on September 26. An analysis of the market correction since September 26 shows that the fall has been broad-based with 7 in 10 stocks of the BSE Allcap Index giving negative re turns during this phase of correction.

Markets assess the broader implications of Donald Trump’s economic policy, which includes higher tariffs and tax cuts, which would boost domestic growth and lead to an expanded fiscal deficit, and reignite inflation. Broadly, his policies are seen as beneficial to the US economy, leading to a rally in the dollar and US equities. The dollar surged to a four-month high of 105.44, while all three major Wall Street indices—S&P-500, Dow Jones, and Nasdaq—hit record highs following Trump’s re-election as the 47th US President.

In the week ahead, keep an eye out for the industrial production data from India, the China, the US, and the UK. Industrial production in India edged down 0.1 per cent year-on-year in August, the first decline since October 2022, following a downwardly revised 4.7 per cent rise in July. The figures for September will be announced. China’s industrial production grew by 5.4 per cent year-on-year in September accelerating from August’s five-month low of 4.5 per cent. The numbers for October are to be announced. Next week starting from November 11, markets will be closely monitoring US inflation data, retail sales numbers, and comments from several Federal Reserve officials. Fed Chair Jerome Powell recently remarked that he hasn’t ruled out or in a December rate cut, signalling that economic indicators will play a pivotal role in shaping the Fed’s next moves.

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 is its performance over five years.

F&O/ SECTOR WATCH

Optimism surrounding Donald Trump’s victory in the US elections fizzled out soon as the Nifty ended the week 0.2 per cent down. The Bank Nifty closed marginally lower. Many sectorial indices ended in the red. Although there were two days of a strong technical rebound, this was subsequently sold into, which kept the Nifty in a broadly defined range. The trading range was wider than usual, with the Nifty oscillating in a 721-point range. In the options market, the highest Call Open Interest for the Nifty was seen at the 24,500 and 24,200 strikes, while the notable Put Open Interest was at the 24,200 and 24,000 strikes. For the Bank Nifty, the prominent Call Open Interest was seen at the 52,500 and 52,000 strikes, whereas notable Put Open Interest was at the 51,000 strikes. More writings were seen in call options as compared to put options, which indicate pressure on a bounce in the market. Implied Volatility (IV) for Nifty’s Call options settled at 13.29 per cent, while Put options conclude at 14.21 per cent. The India VIX, a key market volatility indicator, closed the week at 14.94 per cent.

The Put-Call Ratio of Open Interest (PCR OI) for the week was 1.15. From a chartist’s view, Nifty’s next support levels are at 24,000 and 23,800, with key resistance at 24,500. Currently, Nifty is trading near its 100-day exponential moving average. From a technical perspective, the markets are not out of the woods yet. The Nifty has violated the 20-week moving average, which currently stands at 24,775. All in all, the markets are likely to see intermittent technical rebounds over the coming days. However, it is important to be mindful that a sustained rally is unlikely as long as the Nifty does not move past the 24,500-24,750 zone. The market is expected to move sideways to positive in the upcoming sessions, provided it holds above the 24,000-support level. IT stocks rallied post-US election results, lifting the Nifty IT index by four per cent.

Conversely, the high-beta Nifty Realty Index fell by four per cent. The Nifty Auto, Commodities, Energy, Media, Infrastructure, Realty, and PSE indices may relatively underperform the broader markets. The PSU Bank Index along with the Nifty Metal and the Nifty Bank Index may continue bettering their relative performance against the broader markets. Stock futures looking good Aurobindo Pharma, BEL, Biocon, GMR Infra, Indian Hotels, M&M, Tech Mahindra and United Breweries. Stock futures looking weakare Aarti Inds, ABFRL, DLF, Hind Copper, Mannapuram, Trent, RBL Bank and Mphasis.

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

STOCK PICKS

Unichem Laboratories Ltd

Unichem Laboratories Ltd is an international, integrated, specialty pharmaceutical company. The company is focused on product development, process chemistry and manufacturing complex active pharmaceutical ingredients (API) as well as dosage forms. It manufactures and markets pharmaceutical formulations as branded generics as well as generics in several markets across the world. It has several pharma products that address the needs of various therapeutic areas, such as gastroenterology, cardiology, diabetology, psychiatry, neurology, anti-bacterial, anti-infectives and pain management. The company is also engaged in contract manufacturing with the focus on immediate-release dosage forms, extended-release dosage forms: matrix and pellets, dry powder injections and syrups, novel drug delivery systems, and technology transfer and documentation. During 2023-24, Unichem plants have spurred into a new phase of growth riding on the volume of formulation.

The formulation volume increased by 64 per cent where all three sites contributed to the growth and Goa unit-2 entered into a significant commercial phase. API sites contributed to feed the captive API to the formulation sites and complemented the input in time to support the volume increase. Kolhapur site had a significant increase in its volume growth to the order of 34%. USA has been the major business focus during the fiscal year 2023-24 with 40 per cent increase in the sales over the previous financial year. CMO is another segment where Unichem grew by 48 per cent. Brazil has also shown northward increase by around 90 per cent in the business. Its subsidiaries include Unichem Pharmaceuticals (USA) Inc, Unichem Farmaceutica Do Brasil Lta and Niche Generics Limited UK. Buy for medium term target of Rs1,500.