Day traders ruling the markets

Spooked by weak global cues, fears of renewed outbreak in Covid-19 cases and economic uncertainty, markets after two consecutive weeks ended on a negative note during the week ended. Benchmark indices the NSE Nifty and the BSE Sensex ended the week at 9,973 and 33,781 falling by 169 points and 506 points respectively.

Nifty Mid-cap and Small-cap indices rose marginally out-performing the broader indices, which closed 1.7 per cent negative for the week. Nearly all major sectoral indices ended in red. Even assuming a rapid recovery from here, FY21 GDP could contract by 5 per cent to 6 per cent.

Observers say that after the Prime Minister's meeting with Chief Ministers of different states in next few days will give inkling of new steps to be taken on lock down. Many feel that even if the government doesn't impose as broad a lockdown as it initially did after the coronavirus pandemic hit, regional measures to curtail the spread of the virus will weigh on the economy's recovery. Heard on the street: Reports indicate that rise in number of new broking accounts during the pandemic times suggests swarms of willfully ignorant investors are day-trading their way through the pandemic.

Stock market is beginning to resemble a casino, even more than it normally does. Many stocks, especially of smaller companies in financial distress like Alok Industries and others, have been bouncing around like dice on a craps table. These moves seem partly driven by people, who are flocking to the stock market for the thrill of taking big risks, whether they pay off or not.

Such gambling can be fun, but should not be confused with investing. Wild swings in indices and several stocks are probably powered by individuals trading for short-term kicks and by computer algorithms that pick up on such trades and pile in to ride the momentum. In the old days, the little guy mimicked the big boys; right now, it may be the other way around. This isn't entirely new, of course. But by shutting down the economy, the coronavirus unleashed a new generation of gamblers on the stock market: people, mainly young men, going stir-crazy from quarantine. They've turned to trading stocks. To these thrill-seekers, the magnitude of moves matters as much as the direction; a big loss can be as much fun as a big gain.

F&O / SECTOR WATCH

Amidst high volatility, derivatives segment continued to witness brisk trading volumes. Volatility trading has grown so big that trading on expected market moves can itself move markets. Bets on lower volatility can spur a cycle that magnifies periods of calm. At other times, the strategies can worsen downturns once they begin. The pandemic has cemented its arrival, luring fresh cash and interest as stock swings jumped to new levels. Since then, big moves in stocks- both up and down, including moves of over 300 points in Nifty - have provided traders with ample opportunity to profit.

Options data shows that the maximum Put concentration is at 9,500 followed by 9,700 strike. Fresh Put writing was seen at 9,900 and 9,800 strikes, which are likely to act as a support zone. The Call writers were active at 10,000 strike, followed by 10,200 strike.

The Nifty VIX for the week closed at 29.69 per cent and is expected to remain sideways. The volatility indicated by India VIX, which moved up by 3.91 percent to 30.82 levels, will also be watched closely. The important number to watch out for going ahead is India VIX, which is currently at 30-32 levels.

In the weeks to come, markets are likely to remain under pressure and VIX is likely to rise which will determine the speed of the market movement. PCR OI for the week closed at 1.68 up as compared to last week at 1.52, which indicates more Put writing than Calls. Bullish undertone suggests 'buy on dips' strategy. The Bank Nifty rallied 22 percent during May 22-June 5 on

optimism with respect to reopen. Call writing at 21,000 strike followed by 21,500; and sizeable Put writing at 19,500 indicates the trading range of the Bank Nifty. Renewed buying interest was seen in cement stocks.

Though volume growth in near term is likely to be under pressure larger players are well placed to benefit from any revival in cement demand driven by their strong brand presence, regional focus and higher contribution from retail segment in overall sales. Despite near term headwinds industry observers remain optimistic on the growth prospects of the sector. Buy on declines Shree Cement, Ultratech, ACC and Ambuja Cements. After the push given by the Central Government to reforms in agriculture issuance of ordinances and amendments to certain acts, focus was seen on agri-related counters.

Buy on declines Escorts and UPL. Telecom stocks moved in range bound manner after the Supreme Court direction asking telecom companies to furnish undertakings and file affidavits giving a roadmap for clearing the AGR and security, which they need to furnish by the next hearing on June 18.

Stay invested in telecom stocks for present. Reliance Industries Ltd's (RIL) partly paid-up rights shares would be getting listed on June 15. Analysts expect that the listing could be in the range of Rs 650-700 per share. Important earnings to watch out for in coming week would be Tata Motors, HPCL, NMDC, Pidilite Industries, REC and LIC Housing Finance. Stocks looking good are BPCL, Bharti Airtel, Canara Bank, Escorts, Exide Inds, NTPC, Powergrid, RIL and Wipro.

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