FII inflows broadening market rally

On expectations of economic activity picking up and earnings normalizing, running on hope and liquidity, the benchmark indices moved up. The NSE Nifty climbed 193.20 points to 11,371.60 and the BSE Sensex rallied 557.38 points to 38,434.72.

However, the broader markets continued to strongly outperform the benchmark indices on expected lines as Nifty Mid-cap and Small-cap indices gained over 3.6 per cent and 5.4 per cent respectively.

It is pertinent to observe that the Nifty Mid-cap and Small-cap indices gained 54.5 percent and 68 percent from March lows, and fell 0.7 percent and 3 percent year-to-date respectively against 49.5 percent rally and 6.55 percent fall in Nifty50 in same period.

The market breadth, which defines the strength of the market, has seen significant improvement as currently 68 per cent constituents of the Nifty Mid-cap, Small-cap indices are sustaining above their long term 200-day SMA compared to last week's reading of 58 per cent, which signifies broadening of participation that augurs well for durability of ongoing up move.

Showing strong correlation with the global markets, Indian markets have also notched multi-month highs. FII inflows have been a 'big' supporting factor for the market. The month of August so far reported (Rs 33,386.92 crore) highest ever monthly FII inflow since March 2017 (Rs 33,781.93 crore), whereas DIIs remained net sellers to the tune of over Rs 8,600 crore so far in August in addition to Rs 10,000 crore outflow in previous month. In the week ended, FIIs net bought Rs 2,068.18 crore worth of shares, whereas DIIs net sold Rs 2,117 crore shares.

Heard on the Street: The stock markets across the globe might be logging new highs, but the economies of several countries are not closer to being out of the woods. Observing carefully, it looks like a risk-on strategy emerged in the global equity markets triggered by the highest ever-Quantitative Easing by the US Fed and record fiscal stimulus by the US government.

A part of this liquidity has come to emerging markets, like India and others also. Markets expect FDI inflows to improve much better in future due to attractive corporate tax (amongst the lowest in the world), incentive to set up best manufacturing capacity in India to meet domestic and export demand (example, PLI scheme) and eagerness of countries and corporates to diversify away from China to other resourceful emerging countries like India.

It is pertinent to observe that FIIs have invested substantially in mid & small-caps broadening the market rally.

F&O/ SECTOR WATCH

Ahead of the settlement week, derivatives segment witnessed brisk trading. Track rollovers to spot winners of September series. Maximum Put option Open Interest (OI) was seen at 11,000, while maximum Call option OI was seen at 11,500. The Implied Volatility (IV) of Calls closed at 18.81 per cent, while that for Put options closed at 19.21. PCR OI for the week closed at 1.23 slightly down from the previous week.

The volatility index India VIX fell by nine per cent to end below 20 levels suggesting positive sign for the markets.

However, if India VIX moves above 25-30 range, it would be a cause of concern. Bank Nifty is facing strong hurdle in zone of 22,450 to 22,550 levels. Stock futures looking good are Berger Paints, Canara Bank, Cummins India, DLF, Federal Bank, ICICI Bank, LIC Hsg, PNB and Power Grid. Ujjivan, Equitas and Century Textiles are moving out of F&O from next series. Expect volatility in the counters say punters.

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