Market course hinges on global cues

Amidst bouts of volatility, high liquidity coupled with improving global economic indicators helped markets close on optimistic note during the week ended. The Sensex rose 439.25 points or 1.01 per cent to close at 43,882 and the Nifty advanced by 139.10 points or 1.09 per cent to end at 12,859. However, the real action was in broader markets with the Nifty Midcap index and Smallcap index notching gains of 2.8 per cent and 1.5 per cent respectively.

Sectorally, Financials, Capital goods, Auto and Metals led the gains. IT and Pharma were muted succumbing to selling at higher levels. It is pertinent to observe that FIIs have bought shares worth Rs 46,251.02 crore in November, the highest monthly inflow in at least last two decades, taking the total net inflow in the current calendar year to nearly Rs 88,000 crore. On the flipside, DIIs net sold over Rs 32,600 crore in November alone, which seems to be the highest ever selling in a month.

Market players expect that a weaker dollar and high liquidity are likely to bring more inflows into emerging markets and India is one of the preferred markets in this space. Ongoing rally has broadened in terms of incremental sectoral rotation into cyclicals which were lagging earlier and now catching up. Observers say that broader market will continue with its catch up activity by relatively outperforming the benchmarks.

After conclusion of multiyear corrective phase, both the Nifty Midcap and Smallcap indices are now moving up with significant jump in the market breadth. It is interesting to observe that 87 per cent stocks of the Nifty Midcap and Small cap indices are trading above 200 days SMA compared to last week's reading of 79 per cent. The economy is showing resilience as evidenced by reports of Goldman Sachs and Morgan Stanley. GM upgraded India's FY21 GDP forecast to -10.3 per cent from a -14.8 per cent contraction estimated earlier. Seeing the positive momentum, Morgan Stanley forecast Sensex level to be at 50,000-level by the end of 2021 in its base case scenario. This is 14 per cent higher than the current level. The firm expected the index to be at 59,000 and 37,000 in its bull and bear case scenario. The positive response from vaccine development would lead to a faster and higher recovery in economic activities. The government's latest fiscal stimulus package, aimed at manufacturing, infrastructure, job creation, credit supply, and stressed sectors of the economy, provided further impetus to markets.

Inflation continues to rise with wholesale price index-based (WPI-based) inflation rate rising for the third straight month to an eight-month high of 1.48 per cent. Going ahead, the market is likely to be volatile as sentiments oscillate between fear of rising Covid cases globally and optimism over vaccine progress.

Heard on the street

A rally in the stock market has stagnated recently, after enthusiasm about the development of effective coronavirus vaccines propelled several equity indices across the globe to record highs. The markets are busy trying to balance short term negatives with the longer-term good news that is coming from vaccines.

Global investors expect Asia's emerging-market stocks to outperform peers elsewhere in the world by the greatest margin in a quarter of a century this year.

In short, the countries that have been hit hardest this year have the largest potential recovery to make too-if the narrative shifts decisively toward global recovery. Too many investors become obsessed with being right, even when the gains are small. Winning big and cutting your losses when you're wrong are more important than being right.

Futures and options / sector watch

Ahead of the settlement week, derivative segment witnessed robust volumes. Track rollover of positions to next month to spot winners in stock futures. Options data indicates aggressive Put writing at 12,800 strike and Call writing at 13,000 strike. The Implied Volatility (IV) of Calls closed at 16.43 per cent while that for Put options closed at 16.79. Despite sharp profit taking bouts witnessed in-between the past five sessions, the volatility remained quite unchanged with the Nifty VIX losing just 0.43 per cent over the week and closing at 19.57 per cent.

PCR OI for the week closed at 1.15. Failure to sustain above 12,800 may trigger selling pressure pushing the Nifty towards 12,600. If Nifty breaks above 13,000 with volumes expect a strong short-covering move towards 13,300 levels. The derivative setup indicates that the coming week is likely to be more volatile and Nifty may oscillate in a broader range of 12,600-13,000, punters feel. Keep an eye on Bajaj twins, L&T Finance, M&M Finance and private banks. The auto & auto component industry is the largest beneficiary from the PLI scheme. Use declines to buy auto and auto component stocks.

Stock futures

Looking good are Colgate, Exide Inds, GMR Infra, ITC, RBL Bank, Siemens and Tata Power. Sell on rallies are Biocon, Hero Motocorp, Infosys, BPCL and UPL.

Stock picks

Xpro India Limited manufactures semi-finished plastic products, such as thermoplastic films/sheets/liners. The company operates its polymers business in two divisions: Biax Division and Coex Division. Biax Division manufactures a range of coextruded biaxially oriented polypropylene (BOPP) films and dielectric films on automated production lines, having multipurpose use in applications ranging from food packaging to specialized films for use in electronics, besides being used for print lamination, cigarette overwraps and adhesive tape, among others. Buy on declines for long term target of Rs100.

Jamna Auto Industries Limited is India's largest, and amongst world's third largest, manufacturer of tapered leaf springs and parabolic springs for automobiles. The company is fast expanding its presence in new-generation products, like air suspension and lift axle. Its manufacturing plants are located in Yamuna Nagar, Haryana; Bhind, Madhya Pradesh; Kharsawan, Jharkhand; Krishnagiri, Tamil Nadu; Pune, Maharashtra, and Sriperumbudur, Tamil Nadu. Buy on declines for medium term target of Rs100. Kanoria Chemicals and Industries Limited is engaged in the manufacturing of chemical intermediates in India. The company also has business interests in automotive and industrial electronics, textiles and renewable energy generation. In the year 2012, KCI acquired APAG Holding AG, the Switzerland based holding company and its wholly owned subsidiary APAG Elektronik AG, Switzerland. Its solar power business segment includes power generation from solar energy. It's others segment includes financial activities. It has two chemicals manufacturing facilities, one at Ankleshwar in Gujarat, and the second at Visakhapatnam in Andhra Pradesh. Buy for medium term target of Rs 90.

(The author is a stock market

expert. He is former vice

chairman of AP Planning Board)