Positive reforms give fillip to markets

Saluting to the Union Budget, markets traded exuberantly all through the week and the benchmark indices the Nifty, the Bank Nifty and the Sensex witnessed a parabolic and vertical rise during the week ended. The BSE Sensex spiked by 4,446 points to 50,732 and the Nifty jumped 1,289 points to 13,634.60. Bank Nifty rallied by over 15 per cent this week. While the benchmark indices rose nearly 9.5 per cent, broader markets marginally underperformed, as the Nifty Midcap, Smallcap gained 7 per cent each. It is pertinent to observe that markets recorded the highest ever jump on Budget day in a decade and posted its best weekly gain since April 2020. FIIs have pumped up more than Rs 13,500 crore in the cash segment of the equity markets so far in February.

Positive global cues, Budget push, renewed buying by FIIs, strong Q3 earnings reports, coupled with the dovish outlook from the RBI MPC meeting are some of the factors that fuelled the risk-on rally. Positive economic reforms in the Budget that aimed at economic growth through infrastructure development, capex incentives, setting up of bad bank, privatisation, and asset monetisation gave fillip to markets. FM took the risk of balancing between populism, reform and growth under a weak fiscal position in admirable fashion. RBI's Monetary Policy Committee, which met after the Union Budget 2021 on Friday, decided to retain an accommodative policy stance at least for the current financial year and into the next to revive growth as inflation has eased below 'tolerance level of 6 per cent'.

Apart from the accommodative stance, MPC said funds from banks via the TLTRO scheme will also be available to NBFCs. Additionally, banks have been exempted from keeping cash reserve ratio requirements against loans disbursed to new MSME borrowers. Key macroeconomic data to watch in the coming week are IIP numbers, Inflation data and global cues like US Jobless data.

Heard on the street

The recent experience of GameStop on Wall Street is heralding a real revolution on Wall Street. Invention of a new financial adventurism: swarm trading; wherein together several online traders bid up the prices of some obscure firms has triggered vast losses to hedge funds that had bet on share prices falling. Look beyond the memes and the mania, though, and the GameStop story tells us something about the deep structural changes in financial markets. The fact that the fast-paced frenzy was possible is a testament to just how frictionless trading stocks has become, aided by technological advances. Shares can be bought on an app while you queue for a coffee, at a price that is whisker-close to the wholesale price. A new epoch for retail investors is just beginning and technology may soon make markets for all kinds of assets as liquid as the stock market, say observers. Information technology is being used to make trading free, shift information flows and catalyse new business models, transforming how markets work and bring big long-term benefits. Far from being a passing fad, the disruption of markets will intensify. Wherever we look, technology has helped create new, liquid markets. Insider-dealing and manipulation rules also need to be modernised to deal with new information flows.

Futures & options sector watch

Mirroring the exuberance in the cash markets, derivative segment witnessed "sizzling" activity. Overshadowing the Nifty, Bank Nifty was the flavour of the week. Bank Nifty outperformed the Nifty index by a whopping 7 per cent. On the option front, the maximum Call OI is at 16,000 followed by 15,500 whereas the maximum Put OI recorded at 14,000 followed by 14,500. Call writing at strike prices 15,100 and 15,200 indicates upside will be limited in near term. Spike in VIX suggests continued volatility in next few sessions. Stay away from creating any fresh exposure in the frontline high-beta stocks warns savvy old timers.

Sectorally, all major indices ended in green led by financials, metal, infra and auto. Apart from the PSU banks which rallied on the back of surge in SBI stock price, private banks like IndusInd Bank, Kotak Mahindra Bank, RBL Bank, Axis Bank and HDFC Bank logged impressive gains. Setting up of Bad Bank, Developmental Finance Institution and privatization of PSU banks will be a great positive for the ecosystem. Stay overweight on the sector. Use corrections for entry into good counters. Sector churning was clearly evident with cement, autos, and later in the week the pharma participating in the rally. Scrappage policy gave impetus to auto sector. Use declines to buy Tata motors and Ashok Leyland. Considered defensive bets, pharma and consumption stocks, are witnessing renewed buying. Coming out of recent hibernation several pharma counters are poised for comeback rally. After recent correction Dr Reddy's and Cipla look attractive for short term gains. Sharp selloff in Zee Entertainment is likely to be short lived. Rumours of valuation of OTT division and possible PE player's entry are doing rounds. Contrarian buying suggested for target price of Rs 275 in next few weeks. Stock futures looking good are ITC, Divi's Labs, PEL, Godrej Properties and Ultratech Cement.

Stock picks

Ahlada Engineers Limited is pioneer in residential, commercial steel doors, windows, clean room equipment and furniture for industrial, commercial and residential applications. It makes OEM supplies to Tata Steel. The company supplies equipment to the pharma, biotech, real estate and food industries. Using opportunities that have emerged due to Covid-19 the company manufactured and supplied isolation and quarantine wards during the current fiscal. The manufacturing facility in Hyderabad is equipped to produce over 300,000 steel doors and 60,000 steel windows a year. It is pertinent to note that the company has come out with a public issue of equity shares at Rs 150 each including share premium of Rs 140 per equity share in September, and have been listed on the Emerge platform of NSE. The stock has now been moved to main board for trading and attracting attention of savvy investors. With cash reserves of over Rs 100 crores and free float market cap of just Rs 36 crores, Ahlada Engineers is good buy for medium term target of Rs 150.

Kabra Extrusion Technik Limited is engaged in the sale of plastic extrusion machinery. The company also manufactures allied equipment and specialises in providing plastic extrusion machinery for manufacturing pipes and films. It offers a spectrum of plastics extrusion solutions for pipes, drip tubes, monolayer-multilayer blown films, pelletising, mixers and profiles. The company has now diversified to provide advanced lithium-ion battery packs with battery management systems (BMS) for electric vehicles (EVs) transportation under the brand name 'BATTRIXX'. Being the first company entering the sunrise industry of Lithium Ion battery packs, this expansion will be game changer for the company. Buy in the range of Rs 100-110 for medium term target of Rs 175.

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