GDP data likely to push markets up

Buoyed by consistent FII inflows, positive developments on vaccine front and expectations of strong economic recovery in second half of the current financial year; the last week saw the benchmark indices reach fresh all-time highs. The BSE Sensex gained 0.7 per cent to close at 44,179.72 and the Nifty50 rose 0.85 per cent to 12,969 during the week. True to predictions, broader markets strongly outperformed with the Nifty Midcap index moving up by 4 per cent and the Smallcap index rallying by 6.3 per cent. With markets flush with liquidity, the recent outperformance of the small and midcap stocks might continue for some more weeks.

Changes to the MSCI indices will come into effect from Monday, where India's weightage in the global indices is slated to increase. This move by the global index provider has pulled many foreign funds to invest in India in the past few weeks. Foreign investors bought Rs 65,300 crore worth of shares net in November, the highest ever in a single month. Experts feel the FII inflow could slow down in near term given the expected course of fiscal and monetary policy in the US and Europe, but in the long-term, India may continue to attract FII money.

The surprise that the Gross Domestic Product (GDP) has contracted less than expected is likely to aid the positive sentiment. The Q2 GDP numbers were a big positive revelation. Though agriculture and services numbers came in a little below expectations, manufacturing growth has come in much stronger than expected. Equity markets could open higher on Tuesday reflecting the positivity of the Q2 GDP numbers. The Monetary Policy Committee is scheduled to meet for three days in the coming week and the final outcome will be released by the Reserve Bank of India on December 4. Observers expect status quo in interest rate policy due to inflationary pressures. However, the key thing to watch out for would be the commentary about growth in coming quarters and next year.

Heard on the street

Markets have been largely buoyant over the last fortnight, with the Nifty kissing the 13,000 mark and the Sensex moving past 44,000 levels, even as rising coronavirus infection levels across the world and economic data point to a halting recovery in global economy.

The economy did better than most estimates in the Q2 of the fiscal year as the contraction in GDP moderated from 24 per cent in April-June (Q1) to 7.5 per cent in July-September (Q2). Though the country witnessed the fastest rise in Covid-19 cases in Q2, the "Unlock" phase, wherein most restrictions were relaxed to let economic activity pick up, seems to have helped the economy contain the fall in Q2.

As a result, in the first half of FY21 (two quarters), the economy contracted 15.7 per cent. With a slower fall in GDP in the quarter ended September 2020, both industry and economists are hopeful of demand recovery in the coming months. Investors appear to be looking ahead to next year, betting that Covid-19 vaccines will curb the pandemic and allow social and business activity to return to normal.

The strong outperformance of Midcaps and Small caps in last few sessions suggests that investors have become uninterested in worrying about downside risks.

Futures & options / sector watch

Expectedly settlement week was marked by high volatility and robust volumes in derivative segment. December series started on a volatile note and the Nifty ended marginally below 13,000 levels last week. On the options front, the maximum open interest in Call options was placed at 13,000 &13,100 strikes and the maximum open interest in Put options was at 12,900 and 12,800 strikes. The Implied Volatility (IV) of calls closed at 16.66 per cent while that for put options closed at 17.54 per cent.

The Nifty VIX for the week closed at 20.02 per cent and is expected to remain volatile. PCR OI for the week closed at 1.69. If Nifty breaks above 13,000 levels decisively then expect a short-covering move towards 13,200 and 13,300 levels. Breach of 12,800 on downside with volumes may trigger short-term weakness. The overall option data indicated that the Nifty could remain in a broader trading range of 12,800 -13,300 for the coming week. Bank Nifty was seen struggling to cross psychological mark of 30,000 levels.

Punters predict target of 32,500 for the Bank nifty after a brief pause at current levels. On the back of the monthly volume sales data for November, automobile stocks will be in focus in the coming week. Expect sharp moves in Maruti Suzuki, Tata Motors, Ashok Leyland, Eicher Motors, Hero MotoCorp, Mahindra & Mahindra, Bajaj Auto and Escorts. Industry sources expect volumes to improve in the coming quarters on strong rural sentiment, low-interest rate and improving finance availability.

PSU Banks are back on the radar of institutional investors. Observers expect further equity recapitalisation and merger of smaller banks with larger banks to continue in next few months. Buy BOB, PNB and Canara Bank for short-term targets of Rs 65, Rs45 and Rs125. Stock futures: Looking good for buying are Bank of Baroda, Manappuram Finance, NMDC, Punjab National Bank, Tech Mahindra and Tata Consumer. Sell on rallies BPCL, Glenmark, HUL, ONGC and Petronet.

Stock picks

EID Parry (India) Limited is engaged in the manufacturing and marketing of sugar, bio pesticides and nutraceuticals. Its geographical segments include North America, Europe, rest of the world and India. Its sugar factories have a total capacity to crush nearly 39,000 tonnes of cane per day and generate over 160 MWs of power. Parry's Pure is the only sugar brand to be conferred the 'Super Brand' status in India. Buy on declines for medium-term target of Rs 575.

Shiva Texyarn Limited is a technical textiles company with products/services including cotton yarn and grey fabric. Its coating product range includes artist canvas and digital canvas. It is a leading manufacturer of military and tactical gear. It makes most advanced military gear like Nuclear Biological Chemical Suits (NBC), extreme cold weather clothing for super high altitude mountaineering clothing. Buy for long-term target of Rs175.

Somany Ceramics Limited is a manufacturer and marketer of tiles and offers a range of sanitary ware and bath fittings. The company is engaged in manufacturing ceramic/vitrified wall and floor tiles. It offers wall tiles for kitchen, bathroom, bedroom, home, and office and hotels wall in India. Use corrections to buy for target price of Rs 525.

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