Border tensions looming large over markets

Spooked by India-China border tensions, weak global cues and renewed concerns over economic recovery, the domestic markets snapped two-week winning streak to close on pessimistic note during the last week end. Benchmark indices - the Nifty and the BSE Sensex- shed 313 points or 2.7 percent at 11,334, and 1,110 points or 2.81 percent to close at 38,357, respectively. The broader markets also corrected in line with front liners as the BSE Midcap dropped 2.8 percent and Smallcap index was down 2.6 percent.

After several weeks of consistent buying, FIIs were net sellers in passing week to the tune of Rs 3,800 crore. Eight of the ten most valued companies witnessed a total loss of Rs 1,11,799.05 crore in their market valuation last week, with ICICI Bank and Reliance Industries Ltd (RIL) emerging as leading losers. Markets have lost momentum for the near-term and could be heading into a round of consolidation. The recent data showed that India's Gross Domestic Product growth rate had contracted by 23.9 per cent for the April to June quarter. However, India services PMI for the month of August came improved to 41.8 in August from 34.2 in July thus signaling an improvement in the services sector. Near term direction of the market will be dictated by India-China border tensions, signs of economic recovery, crude oil price trends and rupee-dollar volatility. And on global front, developments around US stimulus and Presidential Election will influence the market sentiment.

Heard on the Street: Primary market activity is only a reflection of the secondary market. If the secondary market is weak then it is unlikely that the market will see companies venturing with their IPOs. The first mainboard IPO of the year happened recently in July when Rossari Biotech's IPO was over-subscribed 79 times. In July itself, three companies- Shriram Transport Finance, Aditya Birla Fashion and Retail and PVR Ltd- have filed their final letters of offer for rights issue. Earlier, Reliance Industries had raised a record Rs 53,124 crore through its Rights issue in May-June 2020. Two companies - Happiest Minds Technologies and Route Mobile- decided to launch their IPOs next week.

IT services company Happiest Minds is set to open its Rs 702-crore IPO on September 7 and will close on September 9, with a price band has been at Rs 165-166 per share. IPO consists of a fresh issue of Rs 110 crore and an offer for sale of equity shares by promoter Ashok Soota and investor JP Morgan-backed CMDB II. Omnichannel cloud communication service provider Route Mobile will open its three-day maiden public offer on September 9, with a price band at Rs 345-350 per share. The company aims to raise Rs 600 crore through IPO comprising a fresh issue of Rs 240 crore and an offer for sale of Rs 360 crore by promoters.

Quote of the week: "The individual investor should act consistently as an investor and not as a speculator; - Ben Graham You are an investor, not someone who can predict the future. Base your decisions on real facts and analysis rather than risky, speculative forecasts.

F&O/ SECTOR WATCH

Amidst heightened volatility, derivatives segment witnessed brisk trading in both stock futures and indices. After last week's correction, the activity in the options segment indicates that the Nifty could trade in the range of 11,100- 11,600 levels in coming days. Maximum Call Open Interest (OI)was seen at 11,500 strike followed by 12,000 and 11,800 strikes, while maximum Put OI was seen at 11,000 strike, followed by 11,300 strike.

Significant Call writing was seen at 11,500, 11,400 and 11,600 strikes, while Put writing was witnessed at 11,300 and 10,800 strikes. The Implied Volatility (IV) of calls closed at 18.33 per cent, while that for Put options closed at 19.57. The Nifty VIX for the week closed at 20.50 per cent and is expected to rise. The tractor space continued to be the flag bearer of the revival, with key players reporting robust growth. Use declines to buy Escorts and M&M. Stock futures looking good are Bata, Bharti Airtel, Grasim, Maruti, Pidilite Inds, TCS and Wipro.

(The author is a stock market expert. He is former vice chairman of AP Planning Board)