Discipline is best investment for 2022

Despite the turbulence in the global markets after hawkish comments in US Fed minutes and rising numbers of Omicron cases, Indian markets displaying remarkable resilience logged gains for the third successive week. During the week ended, BSE Sensex added 1,490.83 points (2.55 percent) to end at 59,744.65, while NSE Nifty gained 458.65 points (2.6 percent) to close at 17,812.70 level. In the broader market both the BSE Mid-cap Index and the BSE Smallcap index also gained two percent each. FIIs bought equities worth of Rs1,082.83 crore, and DIIs bought equities worth of Rs3,293.28 crore. It is Budget time again and the countdown for the Union Budget-2022 has begun.

Observers of economy expect the Union Budget-2022 to play a supportive and enabling role. Last year the Budget was followed up with the counter-cyclical fiscal policy to stabilise the business cycle. This policy requires the government to reduce spending/increase taxes in good times and increase spending/reduce taxes in bad times. Many feel that these policies helped the Indian economy to recover from the recession. Sources close to the government say that the Union budget for FY23 is likely to announce steps to reduce tax litigation, boost compliance by greater oversight of transactions, and work towards the goal of bringing more firms into the fold of the formal sector. It is pertinent to remember that India's tax-GDP ratio is around 10 per cent compared to 25-26 per cent in the case of some of the developed economies.

With Covid recurring in one form or another, tax experts feel that Covid affected people should get a tax deduction in respect of the amount they incur on Covid treatment. Real estate sector, one of the key pillars of the Indian economy contributing around eight per cent to the overall GDP is expected to get infrastructure status as it can help in building liquidity in the sector. Near-term direction of the market will be dictated by Q3 earnings numbers, Budget expectations, macro-economic data, crude oil prices and global cues.

Intelligent Investing: With the course of the coronavirus pandemic unclear, inflation expected to keep spiking and the Central Bank's across the globe poised to raise interest rates, anything can happen—and probably will.

Most investors are treating interest rate hikes forecast as a foregone conclusion but it isn't going by the history. Investors who overhaul their portfolios based on what the Central Banks are likely to do could get stranded if it does something else entirely. Or consider that stocks feel as if they must be due for a setback. That's no sure thing, either. In the past two calendar years, several stocks have doubled or given more returns. While the typical stock isn't cheap, the most expensive stocks are at their highest prices in decades. So it's no wonder market strategists almost unanimously expect tepid returns in 2022.

Quote of the week: It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong — George Soros. Too many investors become obsessed with being right, even when the gains are small. Winning big and cutting your losses when you're wrong are more important than being right.

F&O/sector watch

Ahead of Q3 earnings season, the derivatives segment witnessed a healthy start to New Year 2022. Maximum Call Open Interest (OI) was seen at 18,000 strike, followed by 18,500 and 18,400 strikes. Call writing was seen at 18,300, 17,900 and 18,400 strikes. Maximum Put Open Interest was seen at 17,500 strike, followed by 17,600 and 17,800 strikes, with Put writing at 17,600, 17,500 and 17,800 strikes.

Implied volatility (IV) of Calls closed at 16.18 per cent, while that for Put options closed at 17.02. The Nifty VIX for the week closed at 17.98 per cent. PCR of OI for the week closed at 1.60. Overall option data indicates that the Nifty could trade in the range of 17,500-18,000 in the coming week. Technically, the Nifty faces strong resistance around 18200, whereas the strong support is expected at around 17500. Bank Nifty may trade in the range of 38500 and 36500 levels. With technology heavyweights' results next week, expect heightened volatility to continue say punters. IT majors like Infosys, TCS, Wipro, HCL Tech and Mindtree would announce their numbers. TCS will consider share buyback on January 12. In 2017 and 2018 too, TCS had done a similar share buyback, making this one the fourth buyback by the company. TCS has been doing a combination of buyback and issuance of dividend every year for the last few years to return capital to shareholders.

As per SEBI regulations, the maximum limit for a buyback should be 25 per cent or less of the aggregate of paid-up capital and free reserves of the company. Expect many more Tier-1 companies to come out with 'Buy back' offers. FMCG companies witnessed an increase in demand in the past two weeks as consumers stocked up in the wake of rise in Covid-19 cases across the country. Companies such as HLL, Dabur India and ITC may see heightened action. With the government deciding to not impose anti-dumping duty on certain steel products being imported from countries like China, Japan, and Korea, industry observers expect mild weakness in metal counters. Expect short term weakness in Tata Steel and others. Stock futures looking good Aarti Inds, Atul, Canara Bank, GNFC, Honeywell and UPL. Stock futures looking weak are Aurobindo, Granules, Laurus Labs, PEL, Persistent and Zee Entertainment.

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