Market course hinges on macro data

Spurred by the progress on vaccine front, indications of V-shaped recovery of economic activity on domestic front, record FII inflows and positive global cues; markets extended their winning streak for sixth consecutive week. Benchmark indices continued to hit fresh record highs in the week ended. On BSE, the Sensex crossed 46,000 for the first time, adding 1,019.46 points in the past week, while NSE Nifty gained 255.35 points to end at 13,513.90.

In the month till now, FIIs purchased equities worth Rs 26,927.66 crore and DIIs sold equities worth Rs 18,625.86 crore.

Taking cue from frontline indices, the broader markets also performed impressively with Nifty Midcap and Smallcap indices gaining around 1 per cent and 2 per cent, respectively. It is pertinent to observe that over the past six weeks, the Midcap and Smallcap indices have seen swift upmove of more than 20 per cent. Ahead of the Q3 results season, possibility of temporary breather at higher levels can't be ruled out.

However, such a breather should be capitalised to accumulate quality stocks say market observers. Although the broader market's moves have been muted, there has been a big shift in the stocks and sectors that have outperformed lately.

Investors have turned to groups that are expected to outperform as a vaccine is disseminated and the economy steadily recovers. Industry top guns suggest that post-Covid-19 new world order offers limitless opportunity for India, but for the country to be ready to participate in it, there is a need to establish regulatory standards on data and taxation in general.

Over the weekend, the Reserve Bank of India clarified that borrowers, seeking resolution of their bad debt under the Covid-19 stress scheme as suggested by the KV Kamath Committee, need not submit a resolution plan that the lenders would evaluate, rather, they can simply request by December 31.

On the global front, all eyes are on prospective stimulus package in US and the Brexit imbroglio in Europe. The UK's current commercial and trading ties with the EU expire on Jan 1. If a deal can't be struck, both sides are preparing for significant border disruption affecting trade worth close to $900 billion a year. In the week ahead apart from global cues, market will react to the macroeconomic data such as IIP and CPI inflation.

Quick restaurant chain Burger King is expected to have a strong debut on December 14 as shares are trading with a massive 75 per cent premium in the grey market on December 11. Old timers suggest positive yet cautious approach citing overbought conditions and suggest limiting leveraged positions. It's prudent to stick with stock-specific trading approach and using dips to add quality stocks.

Heard on the street

As the rollout of vaccine begins, there may still be plenty of swings in stock prices to come. With millions getting injected, how will markets react to reports of sickness or deaths among those who have received the vaccine, even without a link to the shot? With unknowns like the length of the immunity from these vaccines, it's unclear if this will be a one-time job or a yearly jab - and therefore, if this is temporary boost to earnings or an ongoing benefit for the companies involved. The pandemic and containment measures had a more severe impact on the economies across the globe than previously anticipated. With markets at elevated levels, caution is the watch word for near term.

Futures & options / sector watch

Mirroring the sentiment in cash segment, derivative segment witnessed robust volumes interspersed with sharp stock specific movements. On option front, maximum open interest in Puts is at 13,000 followed by 12,000 strike; while maximum open interest in Calls is at 13,000 followed by 13,500 strike.

Call writing is seen at 13,700 then 13,800 strike while Put writing is seen at 13,200 then 13,500 strike. The Implied Volatility (IV) of calls closed at 15.68 per cent while that for put options closed at 16.07. The Nifty VIX for the week closed at 18.71 per cent. PCR OI for the week closed at 1.84.

Punters predict the bias to remain in favor of bulls as far the Nifty is holding above 13,300 mark. For Bank Nifty 30,000 mark would as key psychological support. Failure to sustain above 13,600 would lead to consolidation in the 13,600-13,200 range amid stock specific action. Adding to the existing Nifty and Bank Nifty, NSE is introducing another index derivative-Nifty Financial Services Index from January 11, 2021.

The Nifty Financial Services Index comprises of 20 stocks and is designed to reflect the behaviour and performance of the Indian financial services market which includes banks, financial institutions, housing finance, insurance companies and other financial services companies. Hectic activity was seen in FMCG and PSU Bank sectors during the week ended. With visible V-shaped recovery of economic activity in October and both factory output and core sector growth inching up to the pre-Covid level; FMCG, Capital Goods and Infrastructure sectors are attracting renewed attention. Buy on declines HUL, ITC and Marico. Use dips to accumulate Cummins India, Siemens and L&T.

Expected hike in GOI spending in the last quarter of FY20-21 has pulled infrastructure stocks in focus. On the back of reports that CCI is investigating cartelisation allegations on cement companies; sharp selling was seen in cement stocks. Industry sources refute the reports and indicate that revival in demand has triggered the price hikes and not cartelisation. Use the correction to buy ACC, Ambuja Cements, Ultratech and Ramco Cements.

Stock futures looking good for buying are Bharat Forge, Hindustan Zinc, Glenmark Pharma, GMR Infra, HDFC, Kotak Bank, Maruti and Sun TV. Sell on rallies: ACC, BEL, Escorts, Hindalco and Wipro.

Stock picks

Olectra Greentech Limited, formerly Goldstone Infratech Limited, is engaged in manufacturing polymer insulators and is pioneer in electric bus manufacturing in India. It is a part of the MEIL Group. Olectra has major interests in composite insulators, amorphous core-distribution transformers, data analysis, IT consulting and electric buses. Buy for surprising target price of Rs250 in medium term.

Elgi Equipments Limited is a global air compressor manufacturer with a broad line of innovative and technologically superior compressed air systems. The company offers a complete range of compressed air solutions from oil lubricated and oil free rotary screw compressors, oil lubricated and oil free reciprocating compressors. Buy on declines for target price of Rs275 in medium term.

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