Correction time: Need to rebalance portfolios
Chartists indicate some negative divergences on secondary oscillators on both the indices, which point towards limited upside in index for upcoming week
Despite the benchmark indices scaling new highs during the early part of the week ended; spooked by lack of follow up buying, the rising delta variant Covid-19 cases globally and expected US Fed tapering plans markets ended on a weak note. The BSE Sensex was down 107.97 points at 55,329.32 and the NSE Nifty fell 78.60 points to 16,450.50. Broader markets underperformed benchmark indices significantly. The BSE Midcap index declined 1.14 percent and Smallcap index slipped 2.27 percent. After the sharp outperformance of Mid & Small caps in the last few months, Nifty's valuation premium vs Mid & Small caps has narrowed to just nine per cent (LTA) and three per cent (vs 29 per cent LTA), respectively. Analysts expect this trend to reverse and with cautious view are preferring large caps for near term. Any scale down of retail positions could put further pressure on mid/small caps say market players. Renewed selling from FIIs has dampened the sentiment. FIIs have net sold Rs 4,314.4 crore in the week ended, taking the total net outflow to Rs 819 crore in August.
With FOMC meeting minutes suggesting likely tapering beginning from November 2021 vs a prior expectation of Jan 2022, global equity markets may witness heightened volatility. Slowdown in China's growth could also impede the global recovery. Though Nuvoco Vistas Corporation is country's fifth largest cement maker because of high premium charged in IPO, punters do not expect any listing gains.
Retail-focused housing finance company Aptus Value Housing Finance, and specialty chemical company Chemplast Sanmar will also debut on August 24. After the recent correction in the market and weak listings of Windlass Biotech, CarTrade Tech and others; expect 'rough' weather for new IPOs.
Heard on the Street: In a world full of noise, discipline is investor's greatest asset. First impressions are dangerous. An investor will interpret later information in ways consistent with whatever he happened to learn first, skewing his final judgment. To counteract that, investors should use a checklist with structured questions and the evidence to arrive at correct and reasonable judgment. Evaluate stocks based on innovation, financial strength, customer loyalty and quality of management. Rank each dimension independently of the others, using a numerical scale, say from 0 to 5. Wherever possible, compare it to industry averages and long-term historical data. That will help keep one good quality from casting a halo over all the others. Ask different people the same question, or even ask yourself the same question at different times. The average of the responses is sure to reduce 'noise' because the decisions by people and organizations are far less consistent and more variable than we think. The opposite of noise is discipline. It's just doing things in a reasoned way, organizing your thinking so it is as intentional as possible. Noise exists mainly across people; individuals look at the same facts and interpret them in divergent ways. It also exists within each of us; a stock you considered risky on Thursday can feel safe on Friday, even if the price didn't change. Every investor needs to take account of noise; otherwise, long-term results will always be hostage to short-term whims and circumstances. In a world full of noise, discipline is investor's greatest asset.
Ahead of the settlement week, mirroring the weakness in cash market, derivatives segment witnessed sharp down moves in select counters. The Open Interest in the Nifty has moved to its highest levels since March 2020. Long unwinding was seen in Nifty Futures and Short build-up was seen in Bank Nifty futures. On options front, maximum Put OI was seen at 15,500 followed by 16,000 & 16,400 strikes, while maximum Call OI was seen at 16,500 followed by 16,600 & 17,000 strike. Call writing was seen at 16,500 then 17,100 & 16,400 strikes, while Put writing was seen at 15,500, 16,400 then 16,300 strikes. The Implied Volatility (IV) of Calls closed at 11.01 per cent, while that for Put options closed at 12.03 per cent. The Nifty VIX for the week closed at 12.91 per cent. PCR of OI for the week closed at 1.34.
Stock futures looking good are Asian Paints, Bata India, Dabur, Petronet, Pidilite and Mindtree. Stock futures looking weak are Aurobindo, Cipla, NTPC, REC and TVS Motors.
(The author is a stock market expert. He is former vice chairman of AP Planning Board)