Major focus on primary market

On the back of lingering India-China border issue, rising Covid-19 cases and mixed global cues, markets were in consolidation mode during the week ended. Benchmark indices were nearly unmoved with the BSE Sensex closing just 8.73 points lower at 38,845.82 and the Nifty gained marginally 40.50 points at 11,504.95. True to prediction in this column, broader market continued to outperform the benchmark.

The faster pace of retracement in Nifty Mid-cap and Small-cap indices, supported by improvement in market breadth, as currently 72 per cent constituents of Nifty Mid-cap and Small-cap indices have been sustaining above their 200 days SMA compared to past two weeks reading of 65 per cent, signifies rejuvenating price structure that bodes well for durability of ongoing up move. Any significant correction or temporary breather from here on should not be construed as negative, but should be capitalized on to accumulate quality Mid-cap and Small-caps. RBI Governor's statement that response to Covid-19 had been to prioritize the stabilization of the economy and support a quick recovery, but policies for the medium term after the crisis would be equally important with concentration on five focus areas, including prioritizing human capital, increasing productivity, and trying to get into the global supply chain.

The government's borrowing programme, despite its large size of Rs 12 trillion, was being done at a decade-low level of rates. The borrowing is being done at around six per cent, thanks to the liquidity measures undertaken by the central bank. CPI Inflation came in at 6.69 per cent in August, marginally lower compared to the revised 6.73 per cent (earlier projected at 6.93 per cent) in the previous month.

The combined food price inflation (CFPI) for August was at 9.05 per cent against 9.27 per cent in July primarily driven lower by cereals and products, while vegetables inflation at 11.4 per cent remained high. Despite strong protests from several opposition parties, the government managed to pass the three agriculture reforms Bills aimed at a free market economy thereby enabling farmers to sell their produce anywhere in India without the help of intermediaries, for which three Ordinances were issued earlier in the agriculture sector. Near-term direction of the markets will be dictated by F&O settlement, geo political issues, macroeconomic data and global cues. After block buster listing of Happiest minds, the major activity is expected to be in primary market than secondary market, in the coming week, as on the first day of week itself, two companies namely - Computer Age Management Services (CAMS) and Chemcon Speciality Chemicals will open their public issues for subscription, with a price band of Rs 1,229-1,230 per share and Rs 305-306 per share respectively.

Quote of the week: "Based on my own personal experience – both as an investor in recent years and an expert witness in years past – rarely do more than three or four variables really count. Everything else is noise." – Martin Whitman

F&O/ SECTOR WATCH

Ahead of settlement week derivative segment witnessed brisk trading in both stock futures and indices. The market may witness heightened volatility due to the expiry of September Futures & Options contracts and roll over of positions to next month. Volatility is expected to be high this week due to rollovers, while major trigger in stocks would be based on the quantum of

rollovers. Nifty Calls open interest at 11,600 strike and Puts open interest at 11,400 strike define the short term range of Nifty. Call writing was seen at 12,000 strike, followed by 11,800 and 11,600 strikes, while Put writing was seen at 11,200 strike, followed by 10,900-11,500 strikes. Overall all data points of Nifty indicate 11,500 could be a crucial level to watch out for in coming week. Nifty is expected to face strong resistance at 11600. Punters suggest fresh buying only if Nifty moves above 11600 with volumes. Pharma stocks were the flavor of the week. Dr Reddy, Divi Labs, Cipla, Lupin and others posted healthy gains. Three companies are in the advanced stage of Phase I/II/III trials and four are in the advanced pre-clinical development stage for Corona vaccine. Use declines to add positions in the sector. Financial stocks are expected to remain range bound till the outcome of the SC judgment. The Centre will infuse Rs 20,000 crore in PSU banks through bonds in FY21. Contrarians expect the Bank Nifty (which carries 33% weightage in the benchmark index Nifty) to hold the key support threshold of 21800-2200 range as it is 80% retracement of August rally (21000-25230), placed at 21900, and pose a decent pullback which will drive Nifty towards 11800 in coming weeks. Firm trend in prices and improvement in sales spells good times for cement stocks in coming quarters. Accumulate Ambuja Cement, ACC and Ultratech. Stock futures looking good are ACC, Bata India, Bharti Airtel, Cholamandalam, Glenmark, Infosys NTPC, and Wipro.

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