Bullish momentum may remain alive
Focus on stock-specific action from the midcap and smallcap space
Buoyed by positive global cues like signing of second stimulus package by the United States, the approval for Brexit deal by the European Union & UK, and the developments related to rollout of Covid-19 vaccine; and supported by domestic macroeconomic data, markets closed at historic closing highs during the week ended. The Sensex jumped 895.44 points, or 1.91 percent, to 47,868.98 and the Nifty rose 269.25 points, or 1.96 percent, to 14,018.50. Outperforming the benchmark indices, the Nifty Midcap index climbed 3% and the Smallcap gained 3.88 per cent. FIIs continued to act as a key player in Indian equities' rally seen so far with inflows in December at Rs 53,499.66 crore, the second-highest monthly inflow after November, which had witnessed the highest monthly FII investment in equities at Rs 70,844.63. Observers expect the same to continue in the coming year, too, but the pace could largely be depended upon global central banks' action and India's performance. The macro numbers like GST collection and current account surplus are also supportive from an economy perspective. Goods and Services Tax collections for December rose to Rs 1.15 lakh crore, the highest ever since the implementation of the nationwide tax in July 2017. This is the fourth consecutive month this year that GST collections have outperformed comparable months from 2019, a clear sign of strong recovery as the Indian economy slowly came out of its biggest ever contraction in the April-June quarter. The undercurrent bullish momentum may remain alive with the trend in the market starting next week dependent on the upcoming Q3 earnings in and also the focus could be on the Budget expectations ahead of Union Budget 2021. Focus on stock-specific action from the midcap and smallcap space.
Heard on the street: Here is something many investors would have found difficult to believe during March's stomach-churning selloff: 2020 would turn out to be a stellar year for the stock market.The Nifty and the Sensex closed the year at historical highs. The market for initial public offerings is flourishing. Stocks like Burger king, Mrs Bectors and Route Mobile have made a stunningstock-market debut. These are things that would be easy to imagine in boom times. But 2020 has been anything but that for the world outside Dalal Street. The cold reality is that the market's rally has occurred in the midst of a catastrophic pandemic that has killed more than a million people, halted business and travel and wreaked havoc on the economies across the globe. Although there are plenty of reasons for the market's comeback, not the least of which is the massive intervention of Governments and Central Banks of many countries, the staggering rally is still difficult to comprehend for many investors.When stocks bottomed March 23 and began to race higher, many observers were perplexed. Coronavirus cases were surging. Lockdowns were imposed, restaurants, stores and theaters went dark and millions of migrant labor was travelling back to home. The answer: The stock market often begins to recover far sooner than the economy. Stocks have managed to charge higher in 2020, many economists don't expect the country to recover all of the jobs lost during the pandemic until 2023 or later. A lot of people are saying the market is disconnected to reality, but stocks are pricing in what's going to happen in six months to a year. It Pays Not to Try to Time the Markets. With both the pandemic and the financial crisis, those who sold on bad news and waited for the economy to recover to get back into the market would have missed out on the bulk of stocks' upside.
Futures & options / sector watch
Settlement week witnessed heightened activity in the derivative segment. Market-wide rolls were at 93% against the three-month average of 93%. Both stock and index futures have seen better than average rollover into the January series. With the addition of almost 2.8 million shares during the settlement trade, the Nifty January futures is starting with higher open interest of close to 11.8 million. FIIs index futures long/short ratio for the January series starts at 3.1x in the favour of bulls.On the option front, strong Put writing was seen at 14,000 strike and on the Call side, fresh addition of positions was seen at 14,200 and 14,300 strikes. With the indices in uncharted waters, the 14,000 mark will now act as immediate support and expect tussle between bulls and bears over 14K level in the coming week. If bulls maintain hold above 14,000, some short-covering may propel the Nifty towards 14,200 and 14,300 levels. Failure to hold 14K level may see the Nifty slide to 13,800 level.
The Implied Volatility (IV) of calls closed at 19.76% while that for put options closed at 20.34%. The Nifty VIX for the week closed at 21.10% and is expected to remain volatile. PCR OI for the week closed at 1.47. Ahead of the results informed buying was seen in technology stocks. Industry sources indicate that in the IT space, spending on technology is increasing globally and the topline and bottom-line performance of Tier-I companies will surprise. Stay invested and add on declines TCS, Infosys, HCL Tech and Wipro. Recovery in economy and focus on infrastructure spending will give fillip to cement stocks. Buy strong companies like Ultratech, Ambuja and Ramco Cements for surprising gains. Government-owned companies and PSU banks will be the biggest contributor to earnings growth going ahead. Use corrections in PSU companies for buying with medium term view. Stock futures looking good for buying are Apollo Hospitals, ITC, Infosys, LIC Hsg, Lupin, Piramal Enterprises, Shriram Transport and TCS. Sell on rallies: ACC, Escorts, Hero Motocorp, NTPC, Vedanta and UPL.
Cosmo Films Limited is a manufacturer of semi-finished products of plastics. The Company is engaged in the manufacturing of bi-axially oriented polypropylene films (BOPP) and thermal films. The Company has manufacturing facilities spread across India, the US and Korea. Current Price: Rs450 Buy for medium term target of Rs775.
Solar Industries India Limited is an explosives manufacturing company. Its products are used across mining, infrastructure and defense sectors. The Company has 25 manufacturing plants across eight states in India and three overseas. Current Price: Rs1070 Buy for medium term target of Rs1750.
(The author is a stock market expert. He is former vice chairman of AP Planning Board)