Markets dancing to tunes of geo-political concerns

Supported by the merger decision of HDFC twins and the status quo on policy rates maintained by the RBI with a focus on inflation and growth; braving the US Fed's hawkish tone and Ukraine-Russia tensions, the domestic market managed to eke out gains during the week ended. The BSE Sensex rose 170 points to 59,447 points and the NSE Nifty jumped 114 points to 17,784 points. Broader markets outperformed benchmark indices with both the BSE Midcap and Smallcap indices rising more than 3.5 percent.

After hawkish commentary from US Fed, renewed selling was seen from FIIs. FIIs have net sold Rs6,337 crore worth shares during the week, against inflow of Rs5,590 crore in previous week.

With the RBI keeping a close watch on inflation numbers along with growth, especially after higher commodity prices and elevated crude oil prices amid Ukraine-Russia tensions; WPI and CPI data will be an important domestic indicator to keep an eye on. The inflation numbers are expected to remain high after the RBI sharply raised the inflation forecast to 5.7 per cent from 4.5 per cent earlier, citing geopolitical worries between Russia and Ukraine. A higher-than-expected jump in inflation might provoke knee-jerk reactions. Higher inflation triggering a shift in consumption patterns may also hit demand for goods.

In the mid- to upper-income segments, normalisation of behaviour after the third Covid wave is set to shift consumption toward contact-intensive services that were avoided during the pandemic, squeezing growth in demand for goods in FY23. In the coming week, Q4 earnings, the Russia-Ukraine crisis, rising inflation numbers and crude prices will be key areas to focus on for the investors. The key event to focus in the coming week will be the Q4 earnings season that will be kicked off by IT companies. Investors should prefer stocks that are showing higher strength and closely watch earnings and shuffle their portfolios accordingly. The market will remain shut on April 14 for Mahavir Jayanti and Dr Baba Saheb Ambedkar Jayanti, and on April 15 for Good Friday.

F&O/sector watch

On the back of volatility in the cash market and ahead of Q4 results season; the derivatives segment witnessed brisk trading. On option front, Maximum Call Open Interest (OI) was seen at 18,500 strike followed by 18,000 & 17,800 strikes, while Maximum Put Open Interest was seen at 17,000 strike then 17,600 & 17,700 strikes. Implied Volatility (IV) of Calls closed at 17.68 per cent, while that for Put options closed at 18.01. The Nifty VIX for the week closed at 19 per cent, which was slightly lower than the previous week. PCR of OI for the week closed at 1.42. Looking at option data, punters expect the Nifty to consolidate with support at 17,500 and resistance at 18,100 in the coming holiday laced week. Global major Accenture's numbers indicate good tidings for Indian IT majors and industry sources predict stellar numbers from the large IT companies. Expect good results from midcap IT companies also. IT giants TCS, Infosys, and Wipro are expected to report moderate growth in revenue during the December quarter due to continued higher employee expenses. Sources expect TCS, Infosys, and Wipro to post constant currency (CC) revenue growth in the range of around 3-3.5 per cent quarter-on-quarter (QoQ), while HCL Technologies is expected to post the weakest growth of two per cent on a sequential basis due to negative impact coming in from its products and platforms (P&P) business. After the RBI Governor's statement that it is for the NBFCs to make their own choice and the central bank after having created a broad framework does not have a role in their restructuring; big non-banking finance companies (NBFCs) backed by industrial houses like Bajaj Finance, Shriram Transport Finance, Tata Capital, Aditya Birla Capital and Mahindra &Mahindra Financial Services have to find a way out of the tightening regulations as the Reserve Bank of India (RBI) is unlikely to ease norms for them to convert into a bank or permitting them to merge into a bank like the way HDFC merged with HDFC Bank.

Industry quarters predict surprising large M&A deals in coming months. Stock futures looking good are Ambuja Cements, Berger Paints, GAIL, Godrej Consumer, ITC, ICICI Bank, Shriram Transport, SBI and SAIL. Stock futures looking weak are ABFRL, Coforge, HDFC, LTTS, Maruti, McDowell, RBL Bank and Zee.

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