Global cues will drive markets

Buoyed by the vaccine progress across the globe, better-than-expected GDP data, revision of economic growth forecast upwards for current year coupled with accommodative stance and dovish commentary by the RBI, and continued FII inflows; markets extended their winning streak for fifth consecutive week. Recording all-time highs the Nifty closed 290 points higher at 13,259 and the Sensex surpassed 45,000 mark for the first time, rising 929.83 points to 45,079.55. The broader markets too ended with healthy gains last week.

With the benchmark indices now in uncharted territory and the catch up trade continuing in broader markets along with sector rotation, focus will be on global cues, given the absence of domestic cues. FIIs continued their buying with more than Rs 10,000 crore of funds in the first week of December; while DIIs net sold over Rs 6,000 crore of equities in December.

The Reserve Bank of India (RBI) kept policy rates unchanged and promised to continue its accommodative stance this fiscal year and into the next year. The RBI now expects real gross domestic product growth at 0.1 per cent in the third quarter and 0.7 per cent in the fourth quarter, taking full fiscal 2020-21 contraction to 7.5 per cent from 9.5 per cent projected earlier. In the first quarter of the next fiscal year, the RBI suggested growth could be 21.9 per cent (largely because of the base effect as the economy contracted by 23.9 per cent in Q1 2020-21) and overall 6.5 per cent for the first half of 2021-22.

The farmer community has expressed apprehension that the new laws are "anti-farmer", and will pave the way for the dismantling of the minimum support price system, leaving them at the 'mercy' of big corporations. However, the government has maintained that the new laws will bring farmers better opportunities and usher in new technologies in agriculture.

US stock indexes climbed to record highs as the revival of stimulus negotiations bolstered expectations that the economy can weather the pandemic's continued spread. Crude oil prices climbed to $49.25 a barrel-its highest value since March. The world's biggest producers are betting that the worst of a pandemic-inspired shock to demand is behind them after curtailed travel weighed heavily on oil prices this year.The progress on vaccine front really boosted market sentiment and would be a key thing to watch out for in coming weeks.

Key vaccine candidates from AstraZeneca, Pfizer-BioNTech and Moderna reported positive results in their trials, which raised hopes for recovery in global health as well as economy. In the near term market direction will be dictated by the macroeconomic data, developments on vaccine front, FII inflows, crude oil prices and global cues.

Any minor negative news leading the markets lower should be used as a buying opportunity for investors to pick up quality stocks. It's very difficult to predict when the next recession or stock market crash will come, so many of the best investors don't even try. Instead, look for good companies with the strength to make it through the occasional challenging economic environment.

Futures &options / sector watch

Derivative segment continued to witness robust volumes on the back of momentum buying. On option front, maximum Put open interest was seen at 12,000 followed by 13,000 strike while maximum Call open interest was at 13,000 followed by 13,500 strike. Positions at 13,000 Put strikes for both the weekly as well as monthly settlement indicate that breach of 13,000 levels on downside may trigger short-term weakness.

On the higher side, Call base at 13,500 strikes foretells the target for the index. The Implied Volatility (IV) of calls closed at 16.06 per cent while that for put options closed at 16.79. PCR OI for the week closed at 1.70.Overall option data suggests that the Nifty could see a range of 13,100-13,400 levels in coming sessions. India VIX was down by 9 per cent from 19.81 to 18.02 levels during the week.

A lower level of volatility is the new normal and suggests that markets are in bull grip and any decline could be bought in the market. In the coming week, Nifty would face major hurdle at 13,500 levels, which is nearby, however, the Bank Nifty should outperform and move to 31,000 levels without any major efforts. The strategy should be to buy on dips with a final stop loss of Nifty at 13,100. Sectorally, Metals, Auto, pharma and PSU banks outperformed. Expect sectoral rotation in the upcoming week. FMCG, IT and pharma stocks are expected to be back in play. Auto sector showed improved results in their monthly sales volume.

Maruti reported a 1.7 per cent rise where Tata Motors and Hero Moto reported double-digit growth. Increased rural demand in tractors pushed M&M sales volume for the month. On the back of improved sales in all segments in auto sector, auto ancillary stocks are attracting attention. Use corrections to buy Tata Motors, Motherson Sumi, Maruti and Ashok Leyland. Quiet accumulation is seen in infrastructure counters. Buy L&T and GMR Infra for surprising gains.

Correction in cement stocks is likely to be short lived one, say industry observers. Buy Ambuja Cements and Ramco Cements. Stock futures: Looking good for buying are - Bharti Airtel, Bata, Canara Bank, GMR Infra, ICICI Bank Pidilite Inds and Ramco Cements. Sell on rallies ACC, Balakrishna Inds, BPCL, L&T Finance, and Dabur.

Stock picks

Vimta Labs Limited is engaged in the business of contract research and testing services. The contract research and testing organization provides wide range of services to pharmaceutical, biopharmaceutical, food, consumer products, agrochemical, healthcare, medical device and many other industries. Headquartered in Hyderabad, Vimta has a network of 16 labs in India, including food testing and clinical diagnostics labs. Buy on declines for medium term target of Rs 275.

UFLEX Limited is engaged in the manufacture and sale of flexible packaging products. The company also offers a flexible packaging solution to its customers across the globe and has a vast production capacity for Biaxially Oriented Polyethylene Teraphthalate (BOPET), Biaxially Oriented Polypropylene (BOPP) films, and Cast Polypropylene (CPP) films. Some of UFlex's clients on the global turf include P&G, PepsiCo; Tata Global; GSK, Nestle, Agrotech Foods, Coca Cola, Johnson & Johnson among others. Buy for long-term target of Rs 650.

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