Stock-specific moves likely in range-bound trading

Buoyed by the renewed buying of the FIIs, declining inflation, stable rupee, rangebound oil prices and the easing of aggressive rate hikes concerns by the US Federal Reserve; the domestic stock markets extended the uptrend for the fourth consecutive week. BSE Sensex rose 1,075 points to 59,463 and NSE Nifty climbed more than 300 points to 17,698 points. Moving in tandem with the benchmark indices, the Nifty Mid-cap and Small-cap indices also moved up by 1.8 percent and 1.1 percent respectively. FIIs clocked the highest monthly buying since February 2021 and were net buyers of more than Rs14,800 crore in August till date. However, DIIs have taken the advantage of market rally driven by FIIs, to book profits worth Rs4,200 crore in current month, becoming net sellers for the first time since February 2021.

Retail inflation rate, as measured by the Consumer Price Index (CPI), fell to a five-month low of 6.71 percent in July. Even though inflation fell to a five-month low in July, it has now spent 34 consecutive months above the RBIs medium-term target of four percent and seven straight months outside the central bank's 2-6 per cent tolerance range. Though the fall in CPI inflation from 7 percent-plus levels triggered some hopes on moderation of interest rate hike, keen followers of RBI moves expect another Repo rate hike at the end of its next meeting, scheduled for September 28-30. The US dollar index slumped to six-week low amid increasing debate about Fed's monetary policy. Improved risk sentiment also reduced its safe haven appeal and kept commodities at large supported. Trend in the US dollar may continue to be key price determining factor for commodities as market players try to assess Fed's next move. Further cues may come from minutes of Fed's July meeting which will be released next week.

The coming week is a short-trading week with Monday being a trading holiday on account of Independence Day. In the coming week, market will first react to the quarterly earnings of the LIC, ONGC and Hero Motocorp, along with June industrial output and July CPI inflation data on Tuesday.Positive sentiment is expected to continue with focus on global cues. The four-day trading week is likely to see range bound trading marked by stock specific moves.

RakeshJhunjhunwala, the biggest and most vociferous believer in India's potential, both economic and social, passed away on the morning of August 14, the eve of the country's 75th Independence Day. The trader-turned-investor leaves behind a legacy of taking the cult of equity to the masses in his inimical style and a portfolio worth nearly Rs32,000 crore. Gone from our sight, but never from our hearts.

Listening Post: The power of positive thinking returns to markets. It sounds mad to ignore reality and listen only to what you want to hear. But markets work like this for a good reason. The ability of sentiment to influence the direction of markets was on full display in the last few weeks. Investors emerged from deep gloom and managed to find price-supporting rays of light even in clouded news. The most important was in the interpretation of comments by the US Fed Chairman Jerome Powell and RBI Governor. The interest rates would rise further in 2023. The markets tuned all that out. All that market players wanted to hear was about the state of economy. Markets are fighting the Central Banks.Investors were primed to look for good news, because they'd become so glum.

The drumbeat of gloom this year drove down prices, but also meant that even-worse news was required to drive them down more. When everything looks grim, the slightest break in the clouds looks like a new day. Investors had braced for even worse figures than analysts, so it took little to please them. Investors are ignoring the macroeconomic reports and concentrating on the upbeat outlook of individual companies, and together that helped lift the entire market.It sounds mad to ignore reality and listen only to what you want to hear. But markets work like this for a good reason: They care about what is new, not what they were already prepared for. And when investors are pessimistic, they are by definition expecting bad stuff. The mood is still pretty down, so it's possible that they will keep finding reasons to buy for a while. But for the run-up in prices—the Nifty is up sharply from its mid-June low; the midcaps have begun to sizzle—to be sustained it will take more than pure sentiment. There's a narrow path that would be great for markets, where slumping global demand and repaired supply chains rapidly lower inflation. If things don't pan out in this way, the recent sentiment-driven rally will peter out and look like just another dead cat bounce, destined to thud back to earth.

Quote of the week: Know what you own, and know why you own it. — Peter Lynch

Do your homework before making a decision. Once you've made a decision, make sure to re-evaluate your portfolio on a timely basis. A wise holding today may not be a wise holding in the future.

F&O / SECTOR WATCH

Mirroring the strong bullish undercurrent in the underlying cash market, brisk trading was seen in the derivatives segment. The short-term trend of Nifty continues to be positive with range bound action. Expect continuation of sharp swings for the better part of the week ahead and Nifty could test 17,800-17,900 levels during early part of next week. Crossover of the level will put it on course to 18,200 mark. On option front, the maximum Call Open Interest (OI) was seen at 18,000 strike followed by 17,700-17,800 strikes. The maximum Put OI was seen at 17,500 strike followed by 17,000-16,500 strikes. India VIX, which measures volatility in the market, fell by 4.07 percent to 17.61 level on Friday, and was down nearly seven percent for the week.

The Option data indicates immediate trading range of 17,300 to 17,800 for the Nifty and a broader trading range can be between 17,200 to 18,200 levels in coming fortnight. Auto, banking and financials, energy, metal, oil & gas and infrastructure stocks witnessed good buying interest, whereas selling was seen in FMCG, select IT and pharma stocks. Glenmark and other leading generic drug makers like Sun Pharma, Dr Reddy's and Jubilant Cadista have recalled multiple products in US, the world's largest market for medicines because of various issues. Industry watchers remind of past experiences where US FDA observations have triggered sharp falls in the stock prices of some Indian pharma companies. Track the developments carefully.

Anti-trust regulator CCI approved the proposed acquisition of Ambuja Cements and ACC by Adani Group-backed Endeavour Investments. Rerating of stocks on cards. Punters have started buying into the counters. Use declines to accumulate. Stock futures looking good are Aurobindo Pharma, Ambuja Cement,ICICI Bank, SBI Cards, Trent and Tata Steel.Stock futures looking weak are Biocon, Coforge, Divi Labs, IPCA Labs, HDFC AMC and PVR.