Markets may remain highly volatile

Nervousness over the rising Covid cases and increased restrictions in several States and weakness in the Indian Rupee against the United States Dollar triggered weakness in the equity markets and the market fell for the second consecutive week. The Sensex declined 759.29 points or 1.53 per cent to close at 48,832.03 and the Nifty dropped 217 points or 1.46 per cent to 14,617.85. The broader markets saw more correction than benchmarks, with the Midcap and Smallcap indices falling 2.91 per cent and 2.68 per cent, respectively.

FIIs have net sold Rs 2,597 crore worth of shares till date this month. On the contrary, the DIIs continued to be supportive as they net bought Rs 1,736.6 crore worth of selling in equities. The wholesale price inflation rate rose to a more than eight-year high of 7.39 per cent in March. It is pertinent to observe that the WPI was 4.17 per cent in February and 2.51 per cent in January. Economy observers feel that with higher inflation there is negligible space for rate cuts to support growth, in spite of the growing uncertainty related to the surge in Covid-19 cases, localised restrictions and emerging concerns regarding migrants returning to the hinterland. Second Covid wave may generate greater uncertainty for both investor and consumer sentiments. The rupee weakened to close at 75.54 against the dollar, declining 1.1 per cent on week-on-week basis.

In fact, the currency has seen the lowest level since June 2020 amid unwinding of short dollar positions and RBI's Rs 1 lakh crore bond purchase plan. Experts feel the picture for rupee looks gloomy amid rising coronavirus cases and its impact on the economy. Weak rupee deters FIIs from investing. Union Government should be ready to respond with fiscal measures, if required, to deal with situation due to rising Covid cases. In the near term, expect volatility to remain high as the market is expected to continue its focus on updates of State-wise restrictions and the spread of the virus.

Stock-specific movements based on upcoming results can be expected in the market. Similar to week ended, the coming week will be a truncated one with Wednesday being a trading holiday on account of Ram Navami. The 14,735 and 14,900 levels are likely to act as immediate resistance points, while supports will come in at 14,400 and 14,280 levels. Any violation of the 14,400 level will make the trading range wider than usual. Key results to watch for in the coming week - ICICI Bank, HCL Technologies, ACC, CRISIL, ICICI Prudential Life Insurance Company, Indus Towers, Rallis India, Tata Elxsi and Mahindra & Mahindra Financial Services.

Heard on the street

Investment professionals often talk about geopolitical risk. For those new to investing, the term can be unclear. For Indian investors, geopolitical risk typically refers to the added problems and opportunities that come with developments across globe and foreign institutional investors. Recent border skirmishes with China had its toll on markets. Likewise, US-China trade war had its impact on our domestic market. In many countries, for example, a change in the political landscape can send markets into turmoil. For instance, when US bond yields rose, markets reacted quickly and negatively to the news, leading to selloffs. Sometimes analysts focus on identifying longer-term or secular changes in how countries interact with each other to determine where and how the world economy will grow. It is important to realise that geopolitical risk is one of the potential disruptions, investors will have to grapple with in the coming years.

Futures & options / sector watch

Mirroring the indecisive trend in broader market, derivative segment witnessed subdued volumes during the week ended. Metals continued to be resilient and outperformers during last few weeks of uncertain times. Apart from firm domestic demand and price trends, the country's primary steelmakers have increased their share of exports in Q4 amid rising international steel prices. JSPL's share of exports in sales was around 21 per cent in Q3 as against 38 per cent in Q4. SAIL has increased exports to 0.40 million tonnes from 0.27 million tonnes in Q3.

JSW Steel reported a crude steel production of 4.19 million tonnes in Q4 and sources said that there was a significant rise in exports. Tata Steel's exports remained flat at 11 per cent of total deliveries in Q3 and Q4. Analysts argue that copper will play the critical role in achieving the Paris climate goals and say that copper is on a necessary path to $15,000 per tonne. Use declines to buy Vedanta and Hindustan Copper. In a quarter where earnings of banks are expected to be hit by the recognition of Covid-related stress following the Supreme Court's order, HDFC Bank reported steady earnings for the quarter ended March. While the bank's net profit growth of 18 per cent on-year was below analysts' estimates, its asset quality performance and net interest income growth were ahead of Street's expectations. Recent correction in banks provides good entry point. Most banks have corrected on account of the relapse of Covid outbreak-related concerns.

However, this time around the lockdown is not as stringent as earlier and observers expect banks to come out stronger from the Covid-related jolt in terms of asset quality outcomes and cost efficiencies. Aided by elevated provisioning coverage ratios (PCRs) and delinquencies much lower than anticipated, credit costs are likely to fall sharply by FY22F/23F. Rates seem to have bottomed out and this augurs well from the net interest margins (NIMs) standpoint. Contained delinquencies will aid NIMs too. All taken into consideration, expect margins to stabilise and credit costs to fall from FY22F. Top picks are SBI, Axis and ICICI Bank. Covid-related relapse in asset quality remains a key risk. The stock market will remain shut on April 21 on account of Ram Navami.

Stock futures looking good are Aurobindo Pharma, Cipla, Dabur, Glenmark, Hindalco, HCL Tech, Sun Pharma, Tata Consumer and Zee Entertainment. Stock futures looking weak are AU Bank, Indigo, LIC Hsg, Muthoot Finance, Shriram Transport and UBL.

Stock picks

Triveni Engineering and Industries Limited is engaged in the manufacturing of sugar. The company's segments include sugar, engineering and others. Its sugar business consists of sugar, co-generation and distillery. Its engineering business comprises its operations in high-speed gears, and water and waste-water management segments. The other segments include execution of a turnkey project relating to installation of steam turbine-based power evacuation system, trading of various packaged fast-moving consumer goods under its brand name and retailing of diesel/ petrol through a company-operated fuel station. It manufactures white crystal sugar and has approximately seven manufacturing plants in UP. It has installed capacity of 68-megawatt spread over Khatauli and Deob and sugar mills. It manufactures high-speed gears and gear boxes at the manufacturing facility located at Mysore. It provides engineered-to-order process equipment and solutions.

Why we are recommending the stock

• One of the largest integrated sugar manufacturers in India with seven sugar units in UP. 104.5 MW grid connected co-generation capacity at six power plants.

• Manufactures extra neutral alcohol, which is used to produce potable alcoholic drinks, and fuel-grade ethanol at distilleries with 320KLPD capacity at two locations Muzaffarnagar and Sabitgarh. It also produces hand sanitizers.

• It manufactures industrial high-speed gears and gearboxes, and has three different business segments – gears, defence, built to print. Outstanding order book of Rs 1147.28 crore for combined engineering businesses.

Buy between Rs 95-105 for price target of Rs 175-200 (in 9 to 12 months). Risk to reward ratio is 1:5. In the event of very sharp downswing in markets stop loss should be at Rs 80.

(The author is a stock market

expert. He is former vice

chairman of AP Planning Board)