Renewed virus concerns impact markets

Renewed virus concerns impact markets
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Renewed virus concerns impact markets

Highlights

Buoyed by better than expected Q1 earnings from IT majors, positive global cues and progress in development of vaccine for Covid-19, the stocks logged gains for a fifth consecutive week.

Buoyed by better than expected Q1 earnings from IT majors, positive global cues and progress in development of vaccine for Covid-19, the stocks logged gains for a fifth consecutive week. For the last week, the benchmark indices - the NSE Nifty and the BSE Sensex- closed at four months highs at 10,902, up 125 points or 1.24 per cent, and 37,020, up 426 points or 1.16 per cent, respectively. Broader markets took breather after past seven weeks of up move. Nifty Mid-cap remained unchanged, while Small-cap lost 0.4 per cent.

Both FIIs and DIIs were net sellers during last week. Sectorally, IT, Pharma and FMCG outperformed other sectors. After remaining relatively range bound for the better part of the week as investors weighed the prospects for economic recovery amid continued spread of the coronavirus; Q1 results of IT majors provided fillip to markets. Reports indicate that India will be current account surplus in FY21 due to lower oil imports, lower gold imports, and reduction in imports from China. The degree of success in bringing coronavirus hot spots under control, and preventing new ones from forming, will be the major swing factor for the economy in the coming quarter. With issues like India banning Chinese Apps and Britain blocking Huawei from its 5G networks on the radar and trust deficit of doing trade with China on horizon; global trade observers say globalization is now confronted by a wave of 'economic nationalism.' It is imperative to distinguish between 'self-reliance and self-sufficiency,' while formulating trade policies. Kneejerk interventionism or kneejerk isolationism is the wrong course. After surging in April and May, the stock market's rally has slowed in recent weeks across the globe. The key issue now is a concern about a new wave of infections and the potential impact on the economic recovery.

Promising developments on various coronavirus vaccines in development have acted as crucial catalysts for some of the stock market's biggest days of gains, sometimes even helping to pull indexes out of a rut. The vaccine could mark a turning point for global markets. For present, the market seems to be oscillating between greed and fear. Advise investors to stay cautious and avoid aggressive bets at current levels. Book profits at regular intervals. Expect volatility to remain high and look out for sharp stock-specific moves.

Heard on the Street: There's a lot of talk these days about the return of 'irrational exuberance.' The frothy stock market was seen in the internet-stock bubble of the late 1990s. But a close look at the data suggests things are nowhere near that heated. That doesn't mean the stock market won't fall in coming months, of course. Commission-free brokerage platforms like Zerodha in India and Robinhood in USA have experienced a surge in new customers, for example. And we're seeing huge swings in individual stocks—sometimes, for little to no reason at all. Stocks like Alok Industries, Ruchi Soya, Opto Circuits and several others have shot up more than 50 to 200 times for no reason or change in fundamentals.

Going by the present indicators, it can be confidently said that the current market environment isn't nearly as exuberant as it was at the top of the internet-stock bubble.

Caveat: Avoid cats and dogs. Stick to time tested stocks.

F&O / Sector Watch

From derivatives front, the weekly options data indicates that a huge amount of Put writing was seen in 10,700 and 10,800 strikes. The maximum Open Interest (OI) on the Put side has shifted to 10,700 strike and is also likely to act as a major support in the coming week. Call writing was seen at 11,200 strike, which also holds the maximum Open Interest followed by 11,000 strike. Overall option data indicates that Nifty may trade in a broad range of 10,700 - 11,200 in the coming week. However, Bank Nifty remained under pressure during the week and ended with loss of nearly two per cent despite a sharp surge in Nifty. The Implied Volatility (IV) of Calls closed at 23.64 per cent, while that for Put options closed at 25.12 per cent. The Nifty VIX for the week closed at 25.36 per cent and is expected to remain sideways. India VIX (which gauges market sentiment) extended its losses over fifth consecutive week and sustaining below 200 days EMA, indicating diminishing volatility, which signifies continuance of risk-on sentiment. The VIX has inverse correlation with the Nifty. Thus, falling VIX will continue to act as tailwind for the next leg of up move. PCR OI for the week closed at 1.50 down from 1.62 as compared to last week. From technical front, Nifty has managed to surpass above its 200-day simple moving average and now it is likely to trade with positive bias in coming sessions as well. It is pertinent to observe that as many as eleven stocks have reached 95 per cent exposure and are in ban list in futures. Expect sharp short covering/unwinding stock specific moves in coming days.

(The author is a stock market

expert. He is former vice

chairman of AP Planning Board)

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