Unwinding of bearish bets more likely

Buoyed by the positive global cues triggered by US election results and encouraging commentary from US Fed, strong FII inflows, improvement on containment of coronavirus, improving macro-economic data and better-than-expected Q2 earnings; the domestic markets staged one of the sharpest rallies in recent months during the week ended.

The BSE Sensex rallied 2,279 points or 5.75 percent to close at 41,893.06, and the NSE Nifty climbed 621.15 points or 5.34 percent to 12,263.55. It is pertinent to observe that the Sensex and the Nifty are just 0.9 per cent and 1.4 per cent away from their all-time highs. Among the components of benchmark index Nifty, currently 72 per cent are trading above their 200 days SMA compared to last week's reading of 66 per cent. This structural improvement has been accompanied by significant improvement in the market breadth of broader market, as currently average 71 per cent components of Nifty Midcap and Small cap indices are trading above their 200 days SMA compared to last week's average reading of 65 per cent.

The PM's statements that India has shown remarkable resilience in this pandemic, be it fighting the virus or ensuring economic stability were received positively by the investor community. In the week ahead IIP data for September and inflation numbers for October will be released on November 12, while foreign exchange reserves for week ended November 6, which remained at record high levels, will be announced on November13. The market will also closely watch results of Bihar Assembly elections. Reports suggest that the Tejashwi Yadav-led Mahagathbandhan could get a majority in the Bihar election. IPO market will witness one of the largest offerings in pharma sector from Gland Pharma.

Heard on the Street: Across the globe, stocks surged last week as investors angled for the outcome of the US Presidential 2020 elections, a blockbuster stretch that led major indexes to their best week since April. Joe Biden has emerged as the winner of US Election 2020.

Analysts and experts are of the view that the Indian market is poised to gain from Biden's Presidency. Biden's victory may not mean a significant policy change or a tax hike which could have happened in the case of a 'Blue Wave'. As Republicans are likely to hold on to Senate, Biden's Presidency may not bring policies that could undermine big tech companies or bring about radical changes in policies. Market watchers say that the rapid reversal and momentum-fueled rally in the stock market this week has been turbocharged by investors unwinding bearish bets placed ahead of the election. One of the unknowns in the weeks ahead will be the size of a fiscal stimulus package—the subject of much wrangling between both parties in Washington leading up to the election.

F&O / sector watch

Mirroring the undercurrent in the cash market, the derivatives segment witnessed heightened activity. Bank Nifty gained more than 12 per cent. On the option front, maximum Put Open Interest (OI) is at 11,000 and 11,500 strikes, while maximum Call OI is at 12,000 followed by 12,500 strike. Punters were seen buying Calls of 13,000 strike also reflecting the exuberance in the market. Mild Call writing at 12,700 and 12,800 strikes and Put writing at 12,000 and 12,200 strikes was seen. Option data suggests wide trading range in between 11,800 to 12,500 levels. The Implied Volatility (IV) of calls closed at 18.06 per cent, while that for Put options closed at 20.14. The Nifty VIX for the week closed at 20.97 per cent. PCR OI for the week closed at 1.49 down from the previous week. Bank Nifty futures closed the week with gains of 12.13 percent with addition in Open interest by 15.14 percent on a weekly basis which suggests longs were being built and buying interest continues in the banking index. Maximum Put OI is at 24,000 followed by 25,000, while maximum Call OI is at 27,000 followed by 26,000. Call writing in 28,500 strike and Put writing at 26,000 define the perimeter of Bank Nifty.

Diwali stock picks

Mahindra Logistics Ltd operates as a third party logistics (3PL) service provider. Mahindra Logistics is a subsidiary of Mahindra & Mahindra. Buy for target price of Rs575.

Polycab India Ltd is engaged in the business of manufacturing and selling wires and cables, and fast moving electrical goods (FMEG) under the POLYCAB brand. Buy for target price of Rs1750.

Jindal Steel and Power Ltd is a steel producer. The company's segments include Iron &Steel, Power and other. The other segment consists of aviation services and machinery division. Buy for target price of Rs350.

Sobha Limited is engaged in the construction and development of residential and commercial projects. The company is also engaged in contractual projects. It has completed approximately 390 projects in both real estate and contracts verticals with a total developed area of over 81.64 million square feet. Buy for target price of Rs500.

Ramco Cements Ltd, formerly Madras Cements Ltd, manufactures cement, ready-mix concrete and dry mortar products. Buy for target price of Rs1500.

Dark horse picks

Kesar Petroproducts Ltd is engaged in the business of manufacturing of Phthalocyanine Blue Crude and its downstream products in India. The company's main products include Petroproducts and Chemicals. The company's pigment products include Copper Phthalocyanine (Crude) Blue, CPC Crude Blue Activated, Alpha Blue 15.0, Alpha Blue 15.1, Beta Blue 15.3 and Pigment Green 7. The company has a global presence in over 15 countries. Buy for surprising target price of Rs25.

Jain Irrigation Systems Ltd is an agri-business company. The company is engaged in manufacture of plastic products, and manufacture of fruit or vegetable juices, their concentrates squashes and powder. The Non-conventional Energy segment consists of wind energy, solar and bio-gas. It provides various plastic piping systems that are used in conveyance of fluids, semisolids, gases and cables. It manufactures a range of precision-irrigation products. The Company has approximately 30 manufacturing plants globally. Buy for target of Rs35.

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