Optimism back in broader market

Markets further down on renewed rate hike fears
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Markets further down on renewed rate hike fears

Highlights

BSE Mid-cap, Small-cap indices added 2.3% and 1.6% respectively

Buoyed by the positive global cues, short-covering, falling crude oil prices and value buying on the back of reduced FII selling; the domestic stock market snapped two-week losing streak and gained more than two percent during the week ended. Amidst bouts of buying and selling and highly volatile trading in several frontline counters, the BSE Sensex added 1,367.56 points (2.66 percent) to close at 52,727.98, while the Nifty rose 405.8 points (2.65 percent) to end at 15,699.30 levels.

Seeing light at the end of tunnel, optimism was back in the broader market sentiment. Both the BSE Mid-cap Index and the BSE Small-cap index added 2.3 percent and 1.6 percent respectively. On the sectoral front, BSE Auto index added seven percent, and FMCG, Telecom, Information Technology and Healthcare indices added 3 percent each.

On the other hand, Metal index shed 4 9 percent. FIIs sold equities worth Rs53,600.40 crore and DIIs bought equities worth Rs41,983.47 5 crore till date in June. It is pertinent to observe that FPIs sold Rs4.1 lakh crore over the last 15 months in the CM (cash market) segment in primary markets. This time, the pace and amount is much higher than what it was in 2008, which is hurting the Indian market.

Since the real tightening cycle is coming back after decades of a low interest rate era, global investors seem to be considering a new asset allocation strategy say analysts. Indian rupee continued to exhibit weakness against the US dollar and closed 27 paise lower at 78.34 per dollar for the week.

Crude oil rates have corrected since last week, but one of the reasons for this is looming worries of an economic downturn, given that supply side issues continue to exist. India's fiscal deficit and infrastructure output data for the month of May will be released on June 30, while S&P Global Manufacturing PMI data for June will be declared a day later.

It is important to understand that the stock markets across the globe tumbled earlier this month on concerns that the Fed could push the economy into a recession as it tightens monetary policy to combat inflation. Market indexes rebounded during the week ended after bargain-hunters swooped in to buy cheap stocks and—in a paradoxical twist where bad news was good news—some worse-than-expected economic figures fuelled investors' hopes that the Fed might become less hawkish.

Overall, it is expected that the markets may stay highly stock-specific with both high and low beta stocks from select pockets doing well in the markets. While avoiding shorts, a cautiously positive outlook is advised for the week ahead.

Listening Post: Are those who can't remember the crash condemned to repeat it? Markets have risen post Covid and investors returned to stocks, thanks to cheap money from central banks, a rash of takeover deals, the glimmers of economic recovery—and an epidemic of amnesia. Many investors have behaved as if the bloodbath between October 2007 and March 2009, when the US and global stock markets lost at least 50 per cent, had never happened.

More worrisome, investors are forgetting the agonizingly real fear they felt during the financial crisis. That could lead some to take more risk than they should and incur losses they can't withstand. So it is vital to evaluate whether you suffer from investing amnesia and, if you are, to counteract it before it is too late. There isn't any doubt that individual investors have been getting more aggressive. People are revising their memory of the financial crisis, as if they were looking into a rear view mirror made of rose-coloured glass.

You might think memory works like an engraving plate onto which events are carved in stone and preserved for decades until they fade with age. In reality, psychologists have shown, memory works more like an Etch A Sketch, on which events are traced but then often altered or erased entirely. Psychologists say people are prone to spontaneous distortions of memory that make us feel better about ourselves.

You can mitigate the flaws of memory by writing events down as they happen. You shouldn't trust your recollections of how you felt in 2008 and 2009. Instead, ask your spouse or a close friend how afraid you were, and look at your old account statements to see whether you sold at the bottom.

Quote of the week: "With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future — Carlos Slim Helu It's far too easy for investors to lose perspective. Whenever something big goes wrong, a lot of people panic and sell their investments. Looking at history, the markets recovered from the 2008 financial crisis, the dotcom crash, Covid pandemic and even the Great Depression, so they'll probably get through whatever comes next as well.

F&O/sector watch

Ahead of the settlement week, the markets witnessed a relief rally during the week end. Nifty futures bounced back around 500 points from the previous low and closed with a gain of more than two per cent on weekly charts. The market seems to be in an oversold zone, more buying is expected in the coming days, but volatility can't be ruled out.

Maximum Call Open Interest is at 16,000 strike, followed by 16,500 and 15,900 strikes. With confidence that the Nifty would struggle to cross 15,900 level, Call writing was seen at 15,900, 16,500 and 16,000 strikes, and Call unwinding at 15,500, 15,400 and 15,600 strikes. Maximum Put Open Interest was seen at 15,500 strike, followed by 14,500 and 14,000 strikes, with Put writing at 14,500, 15,700 and 15,400 strikes, and Put unwinding at 14,200, 14,100 & 16,700 strikes.

Implied Volatility (IV) of Calls closed at 20.19 per cent, while that for Put options closed at 21.47 per cent. The Nifty VIX for the week closed at 20.88 per cent. PCR of OI for the week closed at 1.04. Nifty could be in a broader trading range of 15,400 to 16,000, with the lower band shifting higher from 15,000 after the recent bounce.

Auto stocks saw buying in last week, whereas metal stocks are still under pressure. Auto companies will be announcing their monthly sales numbers July 1. Industry observers expect healthy growth in sales, largely due to a low base in the year-ago month due to the second Covid wave. Even month on month, there has been an improvement in demand but a full recovery is still some distance away.

Tata Motors, Ashok Leyland, Maruti Suzuki India, TVS Motor, Hero Motocorp, Bajaj Auto, Mahindra & Mahindra, Eicher Motors and Escorts will be in focus. Track textile stocks for surprising gains. Stock futures looking good are Bata, Hind Unilever, Indian Hotels, PVR, Shriram Transport, SBI Cards and M&M. Stock futures looking weak are L&T, Persistent Systems, SBI Life, Tata Chemicals and GAIL.

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