Market course hinges on macro data

Despite the RBI's dovish monetary policy, worried by the rising Covid cases and increased restrictions in key States like Maharashtra and Delhi; the equity markets remained choppy and settled almost on a flat note during the week ended. The Sensex fell 438.51 points to close the week at 49,591.32, while the Nifty declined 32.50 points to 14,834.85. However, the broader markets outperformed benchmark indices and the BSE Midcap index was up 1.2 per cent and the BSE Smallcap index gained 2.49 per cent.

With FIIs remaining on sidelines, DIIs were seen lending support at lower levels. The RBI kept the benchmark repurchase rate unchanged at 4 per cent and maintained an accommodative policy stance to support growth. Reading between the lines, observers conclude that the RBI stance is more dovish than expected with the governor reinforcing the central bank's commitment "to remain accommodative to support and nurture the recovery as long as necessary". IMF projected GSDP to grow at an impressive rate of 12.5 per cent this year.

Macroeconomic data points such as IIP for February and CPI inflation for March will be released on Monday, while WPI inflation for March will be announced on Wednesday. Balance of trade data for March and foreign exchange reserves for the week ended April 9 will be released on Thursday and Friday respectively. Kick-starting the Q4 results season, mostly IT and some BFSI companies will come out with their Q4 numbers in the week ahead. TCS, Infosys, Wipro, Mindtree, HDFC Bank and ICICI Lombard General Insurance are among those that will release their numbers in the next six days. Near term direction of the market will be dictated by news flow on coronavirus infections, outcome of assembly elections, Q4 numbers, macroeconomic data, international crude oil prices and global cues like changes in bond yields.

Heard on the street

Stock valuations have never been so stretched at the beginning of an economic cycle. Savers need to plan for lower future returns. The good news for investors is that the economic rebound from Covid-19 is looking like a fact. The bad news is that financial assets have never been so expensive at the start of a recovery. Stock markets have shaken off concerns about rising bond yields and are setting new highs. Analysts usually compare share prices to the earnings companies generate, which is what investors ultimately have a claim on.

The problem with an 'everything rally' is that, yes, everything is now expensive. Among stocks, even many pandemic-stricken cyclical industries such as entertainment (PVR and others), airlines (Indigo &others) aren't cheap anymore. And with interest rates at record lows and economic growth accelerating, bonds are looking stretched too. Nor is there a dip to buy in real estate.

Home prices have risen during the pandemic and are close to all-time highs in several cities like Hyderabad. Savers shouldn't panic yet. Waiting for a bubble to burst based on high valuations has led to terrible investment decisions in recent decades.

Futures & options / sector watch

Technology stocks will be in limelight in the coming week as IT majors - TCS (on Monday), Infosys (on Wednesday), and Wipro (Thursday) will declare their quarterly earnings. Industry sources predict strong numbers given the increasing demand for digitisation (amid the Covid-19 crisis), large deal wins, and a healthy order pipeline. It would be advisable to explicitly judge management commentary to understand growth outlook for specific stocks. On the back of the risk of the second wave of coronavirus, Pharma stocks were back in demand. Stay invested and adds on declines Divi's Labs, Dr Reddy, Sun Pharma and Glenmark. Even after a 'good' accommodative policy by the RBI, bank stocks corrected sharply amid fear of asset quality concerns due to lockdown restrictions in key States.

If the cases continue to rise and restrictions continue then there could be a further dip in banking stocks which can ultimately weigh on the market performance. Banking stocks will remain on the radar as the market awaits the impact of Supreme Court judgement on banks asset quality and income recognition. The coming week will be a truncated one, with Wednesday being a trading holiday on account of Dr Babasaheb Ambedkar Jayanti.

Stock futures looking good include Aarti Inds, Glenmark, Gujarat Gas, HCL Tech, Sun Pharma, RIL and Wipro. Stock futures looking weak include Bata India, Amaraja, Coal India, APL Ltd, PVR and Jubilant Food.

Stock picks

The KCP Limited is engaged in cement, engineering, power and other businesses. The company's segments include engineering, cement, power, sugar and others. Its general engineering business offers a range products, such as anvils, cylinder for extrusion process and die moulding. Its cement business offers a range of equipment, which includes crushers, rotary kiln, support roller with shaft assembly for kiln, horizontal ball mill, and roller press. Its power business offers a range of equipment, including vertical coal pulverizer mills, columns, reactors, boiler furnace, condensers, steam drum, storage tanks, deareator, air pre heaters, steel power and gear boxes, and loading frame. Its sugar business offers a range of equipment, such as shredders, vacuum pans and co-generation boilers.

With captive supply of high grade limestone, the company has a combined annual capacity of 4.3 million tons of the finest quality premium grade cement in India.KCP Heavy Engineering (KCP HE), a division of The KCP Limited offers a world class build to order heavy manufacturing facility, with a fully integrated steel foundry, heavy fabrication, heavy machine shops with assembly facilities. FIVES CAIL-KCP Limited (FC-KCP) is a joint venture between KCP Limited, India & Fives Group of France to provide turnkey sugar plants, co-generation and incinerator of effluent from molasses based distilleries. The Government of Vietnam invited KCP to set up a sugar factory in Central Vietnam. This led to the formation of KCP Vietnam Industries Limited, as a subsidiary of KCP Limited with an objective to establish a modern sugar factory. The project was executed by FCB-The KCP Limited and the plant was commissioned in early 1999 and commercial production successfully started from January 2002 to manufacture sugar and white sugar. The initial production capacity was 2,500 TCD which was further expanded to 6,000 TCD.

Why we are recommending the company:

• The company's the most preferred brand for building columns, beams, slabs and other concrete construction applications. Supplied large quantities of high quality cement to various large projects like the Nagarjuna Sagar dam, Srisailam dam, Godavari Rail Road bridge and more recently to the Polavaram irrigation project and Sri Kanakadurgamma flyover project in Vijayawada.

• Engineering division is strategically located in the northern suburbs of the southern coastal port city of Chennai, India, with very close proximity (9 km) to the Chennai / Kattupalli / Kamarajar (Ennore) ports for sea transport within India and globally.

• Excellent Q4 results expected. Renewed demand and higher realisation may see cement division report profits of over Rs 175 crore.

Buy between Rs 85-95 for medium term price target of Rs 175-200. In the event of sharp correction in the broader market, stop loss should be at Rs 80. We are looking at a risk reward ratio of 1:8.

(The author is a stock market

expert. He is former vice

chairman of AP Planning Board)