Market course hinges on Q1 results

Amidst choppy trading, stock markets ended last week roughly at where they started. Nifty and Sensex declined just by 36 points and 163 points to close at 11,178 and 37,877 respectively. The benchmark indices after bobbing between small gains and losses for most of the week corrected sharply on Friday.

However, broader markets continued to outperform the benchmark on expected lines as Nifty Mid cap and Small cap indices gained over two per cent each. The market's trepidation reflects the uncertainty that investors are facing as Covid cases and deaths continue to rise, analysts said. Despite the concerns over Covid and the economy, stocks are trading close to their highest levels in six months, stretching valuations to a point of concern. Pharma and tech stocks have traded strongly all week.

Old timers say there is a lot of confusion in the market present and question how stock prices could be so high when country is going through this terrible crisis. In his Independence Day speech, Prime Minister focused on eight specific areas including the need for building a self-reliant India.

The other seven areas touched upon were giving a boost to infrastructure, providing support to urban workers, medium enterprises and middle-class Indians, ensuring greater participation of women in economic activities, taking care of farmers, strengthening the existing digital framework, making development more environment-friendly and building a strong network of national cadet corps in all the border districts of the country.

However, many of these announcements were a reiteration of earlier policies. Target of 1,000 days or roughly three years to complete the extension of an optical fibre network to connect all the 600,000-odd villages in the country and the launch of a national digital health mission through which every Indian's health record data would be collected helping in delivery of health services has been announced.

These programs envisage bright prospects for telecom and healthcare sectors. Apart from pharma and IT, all the economy-related sectors like auto, industrials and capital goods are coming into investor's radar as there is an expectation of normalization of the economy.

The global rally in equity markets, ongoing domestic earnings scorecard and announcements related to vaccine development helped the sentiment-led rally to continue for almost five months. Mid-cap and Small caps seems to be getting their mojo back as they are starting to outperform large-cap peers. There is still huge investors' appetite for equities as precious metals are considered too expensive. So investors are chasing fundamentally sound Mid-caps & Small-caps.

However, expect broad-ranged action within 11400-10900 with a negative bias to be witnessed in the coming week. Sentiment direction will be dictated by quarterly earnings, progress of monsoon, global cues and movement of rupee against the dollar. Remain cautious and restrict trades to short-term itself with more emphasis on stock-specific trade setups on either side.

Heard on the Street: Coming to US markets, fresh economic data, including unemployment claims and retail spending, continue to suggest the economy is recovering, albeit slowly. Whether the recovery can persist in the absence of further stimulus is something investors are weighing now, say analysts.

The S&P 500 has flirted with record levels in recent days. It has been only 123 trading days since the S&P 500 set its last high. A new record would be the fastest recovery from a bear market in history. As US Presidential Election are just three months away, traders are preparing for the possibility that prolonged political uncertainty will stoke stock-market mayhem. Any sharp fall in the US markets will trigger a domino effect across globe markets

F&O/ SECTOR WATCH

Mirroring the tepid volumes in cash market, derivative segment witnessed muted activity in many stock futures. Options data indicates that Nifty could trade in a range of 11,000-11,400 in coming days, while the VIX being in the comfort zone could remain an indication for bullish undercurrent.

Maximum put option open interest was seen at 11,000, while maximum call option open interest was seen at 11,500. Call writing was seen at 11,200 and 11,300 strike while Put writing was seen at 11,100 then 10,800 strike.

The Implied Volatility (IV) of calls closed at 17.46 per cent while for put options closed at 19.41. PCR OI for the week closed at 1.47 slightly down from the previous week which indicates call writing in out of the money strike. After underperforming for better part of recent rally, financials are expected to outperform in next few weeks, say industry observers.

Niti Aayog is expected to announce prioritized list of PSUs to be privatized in next few weeks. Stay invested and add on declines in PSU stocks. Stock futures looking good are Ashok Leyland, Adani Ports, BEL, Cadila Health, L&T, L&T Finance, M&M Finance, NMDC and Tata Power.

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