Market course hinges on macro data

Haunted by noise over US bond yields, worries over second Covid wave, uncertainty over outcome of state assembly elections and weak global cues; markets have fallen for second successive week. The Sensex fell 849.74 points or 1.70 percent to end at 49,008.5 and while the Nifty declined 236.7 points or 1.6 per cent to close at 14,507.3 levels. The broader indices had outperformed the benchmark indices with the BSE midcap index was down 0.3 per cent and smallcap index fell 1 per cent. It is pertinent to observe that FIIs were net sellers of more than Rs 6,000 crore and DIIs were net buyers of more than Rs 4,500 crore during the week.

Next week would be a truncated one for the Indian markets as markets will remain closed on March 29 for Holi and on April 2 on account of Good Friday. Given the short-trading week, the markets are broadly expected to stay in a defined range with limited moves on either side. Keep excessive leveraged exposures under check so long as the markets are under the broad consolidation phase, warn old timers.

The stability in the market depends on the pace of vaccination and fourth-quarter results which are expected to be positive, given the recovery in economic activity during January and February 2021. Near term direction of the market will be determined by the macroeconomic data, Covid situation, changes in bond yields, crude oil prices and global cues. Keep an eye on some macro data that the government and RBI will release. February infra output, Q4 current account, Q4 external debt, preliminary import and export data for March and forex reserves as of March 26 are some of the data that will be released.

The RBI is slated to announce its first bi-monthly monetary policy of 2021-22 fiscal on April 7, 2021, after a three-day meeting of the Monetary Policy Committee. True to prediction and warnings in this column last week's new listings, Suryoday SFB, Kalyan Jewellers, Anupam Rasayan, and Craftsman Automation listed lower than their issue prices.

Before these last five listings, the average debut gain for a public issue stock in 2021 was 38 per cent. As investors are increasingly turning their attention to some high-flying IPOs that earlier recorded big listing gains, are coming to terms with the force of gravity. All eyes are now on the listing of well-known investor Rakesh Jhunjhunwala-backed mobile gaming company Nazara Technologies.

Heard on the street

The blockage of the Suez Canal prolongs a period of unusual pain for global supply chains and unusual profits for the shipping industry that serves them. Investors are betting on a return to the old normal, but the arrival date keeps getting pushed back. The gigantic vessel beached in the Suez Canal caps a year of extraordinary drama for shipping. Container volumes collapsed in the first wave of the pandemic but recovered far faster and further than expected. That helped drive a historic surge in shipping rates that has yet to unwind.

The Suez jam will extend the disruptions. Around 12 per cent of global trade flows through the canal and the longer it remains blocked, the more vessels will pile up on either side or take the long route around Africa.

Investors are by and large assuming the post-pandemic normal, when it eventually emerges, won't be different for supply chains from the old one. The hope for shipping - and the risk for global supply chains - is that the industry has learned from its long period of generating subpar returns.

Futures & sector watch

Settlement week witnessed brisk trading in the derivative segment. Rollovers were a tad lower compared to three month averages. The India VIX inched with a 1.40 per cent rise on weekly count as the market witnessed a rise in volatility. PCR OI for the week closed at 2.08. Richly valued options are clearly suggesting expectations of heightened volatility next week as well.

Fears of second wave of Covid-19 cases has triggered shift of buying into defensives Pharmaceuticals, FMCG and IT. Use declines to buy Dr Lal Path Labs, Divi's Labs, Cipla and Sun Pharma. Heightened interest is likely in HUL and ITC from FMCG space, Asian Paints, and Berger Paints. Expectations on Q4 results of IT biggies are high. Stay invested in TCS, HCL Tech and Infosys for further gains. Ahead of their monthly sales number for the month of March on April 1, auto companies are likely to attract stock-specific buying.

Momentums seen in February numbers likely to continue say industry observers. Commercial vehicle segment may report robust sales. Stay invested in Tata Motors and Ashok Leyland. With reports of price hikes in passenger vehicles from April, mild bump up likely in March sales. With only three trading sessions in the coming week expect absence of sector leadership and highly stock specific moves. Stock futures looking good are Berger Paints, Gujarat Gas, JSW Steel, Tata Steel, Tata Consumer and PI Inds. Stock futures looking weak are AU Bank, Coal India, SRF, M&M and Zee.

Stock picks

Deepak Fertilisers and Petrochemicals Corporation Ltd. (DFPCL) is among India's leading producers of fertilizers and industrial chemicals. The company is one of the leading manufacturers of NPK and specialty fertilizers in India. The company under its flagship brand Mahadhan, manufactures high quality NPK, specialty and water soluble fertilizers. It offers a basket of 48 products which include bulk fertilizers, specialty fertilizers, water soluble fertilizers, micronutrient and secondary nutrients, catering to every farmer's crop nutrient requirement. It is the only manufacturer of 24:24:0 Nitro Phosphate in India.

The company has the largest Nitric Acid Complex in South East Asia and is the leading manufacturer of industrial chemicals in India: Nitric Acid, Iso Propyl Alcohol (IPA), Food Grade Liquid Carbon Dioxide and Methanol. It is the largest manufacturer of Iso Prophyl Alcohol. User industries include pharmaceutical, inks and coatings, cosmetics and agrochemicals.

It is moving from a domestic market leader to being a global player, while moving forward into mining services and solutions in agri-business. In Pune, the company has built India's first true Lifestyle Centre, Creaticity. It is first of its kind retail destination that focuses on home and interior and also offers a unique F&B experience. Spread across 10 acres with over 4 lakh sq. ft. of retail space it is the largest destination for Home and Interiors in Western India.

Why we are recommending the company:

• Reduction in debt levels and demand recovery to help the company report record profits in coming quarters. The company's focus on balanced product mix and new verticals would be key drivers for the stock.

• Diversified contribution of different verticals of businesses

• The company is expanding capacities in Ammonia, Iso Propyl Alcohol, TAN and Fertilizers.

Buy between Rs 200-210 for medium term (nine to twelve months) price target of Rs 325-375. In the event of sharp correction in the broader market, stop loss should be at Rs 175. We are looking at a risk reward ratio of 1:6.

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