Rise in Covid cases will weigh on markets

In the holiday laced week ended March 12, amidst heightened volatility, supported by buoyant global cues, equity markets extended gains for second consecutive week during the week ended. Benchmark indices the Sensex jumped 386.76 points or 0.7 per cent to close at 50,792.08 and the Nifty rose 92.85 points or 0.6 per cent to finish at 15,030.95 levels.

During the week, the Sensex traded in the range of 51,821.84 and 50,318.26, while the Nifty remained in the range of 15,336.3 on the higher side and 14,919.9 on the lower side. Nifty barely managed to hold on to 15,000 levels. Market breadth also remained very choppy throughout the week. However, the Small cap index relatively outperformed by gaining 1.4 per cent. During the course of week FIIs bought equities worth Rs 1,127.82 crore, and domestic institutional investors (DIIs) bought equities worth of Rs 1,238.89 crore. Till date the FIIs purchased the equities worth Rs 3,327.56 crore and DIIs sold equities worth Rs 1,396.48 crore. The Indian rupee gained against the US dollar. It ended higher by 24 paise at 72.78 per dollar on March 12. The biggest worry for the equity market right now is rising bond yields, which if does not pause, will result in fund outflow from the Indian market.

Market will also react to IIP and CPI inflation data. Near term direction of the markets will be dictated by US Fed meet on March 16-17, bond yields, macroeconomic data, crude oil prices, rupee-dollar fluctuations and concerns over resurgence in Covid cases in some parts of the country. The week ahead is 'loaded' as far as the primary market is concerned.

As many as six issues will be active during the week. They include Anupam Rasayan, bidding for which has already begun. Besides, Suryoday Small Finance Bank, Kalyan Jewellers, Laxmi Organic Industries, Craftsman Automation and Nazara Technologies are other issues that will open for bidding. Observers say that there is flight of funds from secondary market to primary market. Irrational exuberance seen in listing premiums suggests 'bubble' in making. Avoid buying at extravagant listing prices of newly listed stocks.

Heard on the street

Value stocks are beating growth stocks by the widest margin in two decades, the latest sign that investors expect the next year to bring a powerful economic rebound. As the rollout of Covid-19 vaccines quickens and the economy bounces back from last year's shutdowns, portfolio managers are snapping up cyclical stocks - metals, banks, energy companies and others whose fortunes are closely linked to economic growth. Those shares often fit the description of value stocks, which trade at low multiples of their book value, or net worth.

Among the stocks recently leading the way for the value index are banking heavyweights SBI, ICICI Bank and other private banks like Kotak Bank and HDFC Bank as well as metal giants Tata Steel, Hindalco and others. With rising bond yields and oil prices pointing to expectations for broader economic growth, cyclical stocks are on a roll. The rally in bank stocks has been fuelled in part by the reforms proposed by the government. Part of the appeal of value shares is their lower valuations, especially after last year's tech and pharma rally. For much of last year, investors prized growth stocks from IT and Pharma sectors, many which stood to benefit when the pandemic forced people to work and shop from home. The earnings picture looks bright in several corners of the value realm as well. Profits for the industrial, materials and financial sectors are expected to surge in 2021.

Futures & options/sector watch

Amidst heightened volatility derivative segment continued to log good volumes. The options data suggests that the wider trading range for the Nifty could be 14,500-15,500 and an immediate range of 14,800-15,300. Nifty likely to hover within broader range of 14,800-15,300 levels with some volatile moves. Break of the said range on either side will dictate the trend in the short-term. However, on a larger picture markets still remain deviated on the upside and a break below the recent lows of 14,470 will trigger short-term weakness. While staying light on the leveraged exposure, a cautious approach with vigilant profit protection at higher levels is advised for the coming week.

On the sectoral front, Nifty Realty Index fell 2.3 per cent, Nifty Auto Index slipped 1.3 per cent, Nifty Auto Index was down 1.3 per cent and Nifty PSU Bank Index shed 1.2 per cent. On the other hand Nifty IT Index rose 2.6 per cent. With the rupee depreciating, IT may well show improved relative strength along with auto, energy, infrastructure and select midcap stocks. Ahead of results, use declines to buy TCS, Infosys, HCL Tech and Wipro. Reacting to LIC announcement to not hike premiums, other insurance counters corrected sharply.

However, it can be observed that private insurers saw their NBP growing 16 per cent in February to Rs 9,504.64 crore, compared with Rs 8,128.51 crore YoY. SBI Life showed strong growth of more than 60 per cent, HDFC Life's NBP grew 20 per cent, and Max Life also witnessed impressive growth of above 30 per cent. The Union Cabinet has given its nod for amendments in the Insurance Act paving the way for 74 per cent FDI in the sector. Currently the permissible limit is 49 per cent in life and general insurance. Use the present correction to buy insurance counters. Stock futures looking good are HCL Tech, JSW Steel, L&T, L&T Technology, Powergrid, PFC, ONGC and Tech Mahindra. Stock futures looking weak are Alkem, Ashok Leyland, Pidilite Inds, Torrent Pharma, TVS Motor and Navin Flouro.

Stock picks

Gujarat Narmada Valley Fertilizers & Chemicals Limited is engaged in operating businesses in the industrial chemicals, fertilizers and information technology (IT) products space. There is more to GNFC than meets the eye. Fertilizers business is only a part of the company's growing sphere of activities. In fact, industrial chemicals have been the dominant driver of growth for the company in recent times. GNFC has the world's largest single stream, fuel oil based Ammonia - Urea plant. The company is engaged in manufacturing and selling fertilizers such as Urea, Ammonium Nitro phosphate under the umbrella Narmada. The company is India's largest producer of Formic Acid, Acetic acid and Methanol; and is also India's only manufacturer of Glacial Acetic Acid through the cutting-edge Methanol route.

The company has India's largest single stream plant of Aniline and is the only manufacturer of Toluene Di-isocyanate in South East Asia. The industrial chemicals manufactured by the company are used by a wide range of manufacturers, processors and chemical operators in India and even abroad. The company provides various IT services and solutions covering system integration, e-procurement, e-governance projects, data centres and cloud storage under the brand name of (n) code solutions. Record capacity utilisations in all plants in recent months spell good times for the company.

Why we are recommending the company:

• Results of Q3 of the company reflect the buoyancy for company in coming days.

• The company has reported record capacity utilizations for several products for which capex have already been accounted for.

• Possible exceptional gains from the present buoyancy in prices for several products including fertilizers and chemicals.

• Buy between Rs 280–310 for medium term price target of Rs 425 - 475.

In the event of sharp correction in the broader market, stop loss should be at Rs 250. 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)