Trump-Modi summit vital in guiding lacklustre market

On the back of escalating worries that the coronavirus epidemic would crimp global growth, markets remained lacklustre for the second consecutive week. During the week ended the Sensex declined 0.21 percent to 41,170.12 and the Nifty fell 0.27 percent to 12,080.85. However, outperforming the benchmark indices the BSE Midcap index gained 0.21 percent and Smallcap rose 0.44 percent during the holiday-shortened week. Failure of negotiators to reach a modest, confidence-building deal before the Trump-Modi summit may dampen markets.

Near term trend will be governed by F&O settlement, flow of news on Coronavirus, Donald Trump's visit to India, GDP growth numbers for Q3, domestic macro-economic data (infrastructure output for January, bank loan and deposit growth for fortnight ended February 14, and foreign exchange reserves for week ended February 21 will be released on February 28), FII and DII activity, the movement of rupee against the dollar, crude oil price movement and global cues.

The mixed signals across the global markets highlight how difficult investors are finding it to assess the damage that the coronavirus. Chartists suggest strong hurdle at 12,300-12,400 zone for the Nifty. Skeptics caution that equity investors are much too upbeat about stock market's ability to withstand the epidemic. Barring fresh triggers, the market is expected trade sideways with a negative bias on account of continued impact of China issue in near term.

FUTURES & OPTIONS

Ahead of settlement week, choppy and volatile trading was seen in the derivative segment. After the sharp recovery (post Union Budget 2020) in the early part of this month, the Nifty failed to sustain at higher levels. Nifty is facing stiff resistance at 12200 levels while 11900 should provide immediate support. Nifty likely to remain range bound within 11900-12200 levels for present. Expect consistent profit booking at the higher levels.

Maximum Put open interest is at 12,000 followed by 11,800 strike while maximum Call open interest is at 12,200 followed by 12,300 strike. Put writing was observed at 11,900 followed by 11,800 strike while Call writing was seen at 12,200 then 12,100 strike. The Implied Volatility (IV) of calls closed at 12.64% while that for put options closed at 13.20%.

The Nifty VIX for the week closed at 14.02% and is expected to remain volatile. PCR OI for the week closed at 1.19. The near-term trend of Nifty remains choppy. The broader range movement could continue, and the Nifty could retest the lower support of 11900 in the next week. The possibility of a sharp movement in the next few weeks is not ruled out say punters.

The much-awaited initial public offering of SBI Cards and Payment Services is yet to announce the price band (largely expected to be around Rs 750-755 per share) but is already commanding hefty grey market premium of Rs 310-320 per share. Q3 results of cement companies were marginally below expectations due to lower volume and realisations.

However, stock prices were resilient on expectations that fall in costs like pet coke and fuel will improve margins in coming quarters and the performance is likely to get better in the coming quarters supported by improvement in the economy. Buy Ambuja Cements, Ultratech and India Cements. Buy SBI and BOB. Stocks looking good are Shriram Transport, PFC, Biocon, Infosys, Voltas, Glenmark Pharma and Torrent Pharma.

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