Uncertainty looms large over bourses

Spooked by the change in investor sentiment over the outcome of ongoing General Elections, persistent aggressive selling by FIIs and VIX shooting up to 52-week high; the domestic stock markets witnessed a sharp correction from record highs. It is pertinent to observe that while several global markets have rallied to record highs, Indian markets were weaker during the week ended May 10.

NSE Nifty closed 1.9 per cent lower at 22,055 points and Bank Nifty ended 3.1 per cent lower at 47,421 points. The sell-off was visible in broader markets with weak market breadth and both the Nifty Midcap and Smallcap indices correcting by over 2per cent and 4per cent respectively. Observers say that FII strategy is to sell India which is expensive and buy China which is very cheap mainly through Hong Kong. The PE ratio in India is more than double the PE ratio in Hong Kong. So long as this ‘Sell India, Buy China’ trade sustains FII selling will weigh on the markets.

The situation can change dramatically when clarity emerges on the election outcome. Additionally, nervousness among investors increased due to the ongoing global uncertainties and Lok Sabha election outcome next month.

Market likely to consolidate in a broader range amid the nervousness surrounding ongoing Lok Sabha election. Analysts expect markets to remain in a broader range with stock-specific action in the near term. VIX surged over 25 per cent last week and high-beta sectors faced the brunt of the selling while defensive sectors like FMCG, buoyed by positive earnings reports, performed well. Investors would be watchful of their equity exposure over the next few weeks as any adverse news on the election front could trigger massive sell-off going ahead. Oil prices remain critical for markets with their impact on inflation and the rate trajectory of global central banks including India’s.

F&O / SECTOR WATCH

Mirroring the weakness in cash market, derivatives segment witnessed an initiation of fresh shorts in last few sessions. While the Nifty experienced a loss of over 1.5 per cent, the Bank Nifty underperformed the Nifty and recorded a loss exceeding 3 per cent.

Stock futures looking weak Asian Paints, Birla Soft, JK Cement, Pidilite Inds, Titan Inds, M&M Finance and Voltas.

STOCK PICKS FOR 2024

Crompton Greaves Consumer Electricals Ltd (CGCEL) is one of India’s leading consumer electrical companies, having a rich legacy of more than nine decades in the ECD and Lighting segments. The company manufactures and distributes a diverse range of consumer items, including fans, pumps, and appliances (Water Heaters, Air Coolers, Mixer Grinders, Iron, and Other Small Kitchen Appliances) in the ECD category, as well as lights. Buy at current levels for target price of Rs500 in medium term.

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