Consolidation may continue this week

Weighed by unsupportive global cues, concerns over progress of monsoon, and worries over the third coronavirus wave; the stock markets ended marginally lower during the week. The BSE Sensex was down 0.19 percent, while the Nifty fell 0.2 percent for the week closing at 52,475 points and 15,799 points respectively. However, the BSE Mid-cap index was up 1.3 percent, and the BSE Small-cap index was up 1.2 percent. It is pertinent to observe that the FIIs were net sellers of more than Rs 2,000 crore worth of shares, taking the total outflow to Rs 4,256.45 crore in the month of July so far.

However, DIIs net bought Rs 1,903.45 crore of shares in July. Smoke signals of trouble are visible from different parts of the country, in the increasing Covid-19 cases, reduced pace of vaccination and the shortfall in vaccine supplies.

A break in the south-west monsoon early in June has affected Kharif sowing in many parts of the country this year, with the overall coverage falling 10 per cent until July 8 compared with the same period a year ago. Track the progress of monsoon warn market watchers.

Many investors accumulate stocks of firms emerging from bankruptcy, lured by stray cases of windfall and without understanding the inherent risk in such investments. Market observers expect the consolidation in stock markets to continue in the coming week. Near term direction will be dictated by developments on the new variant of Covid-19, international crude oil prices, Q1 earnings, macroeconomic data, monsoon progress and global cues. Stock-specific action could continue as companies unveil their June quarter earnings.

Heard on the Street: Investors appear to be growing more and more optimistic about how their portfolios will perform in the years to come. Disappointment is bound to follow. Optimism is as Indian as Vada Pav and Idli Sambhar.

What if you happened to pick a big winner? The top performers consist mainly of companies you've probably never heard of, either 10 years ago or now – Avanti Feeds, Caplin Point Labs, Vaibhav Global, Alkyl Amines and Tasty Bite.

The biggest winner of all over the 10 years through the end of 2020 was Avanti Feeds, up 214 times.

Quote of the week: "We don't prognosticate macroeconomic factors, we're looking at our companies from a bottom-up perspective on their long-run prospects of returning; Mellody Hobson.

It's very difficult to predict when the next recession or stock market crash will come, so many of the best investors don't even try. Instead, look for good companies with

the strength to make it through the occasional challenging economic environment.

F&O/sector watch

Stock-specific action marked the trading pattern in the derivatives segment. On option front, maximum Put Open Interest was seen at 15,000 followed by 15,700 and 15,600 strikes, while maximum Call Open Interest was seen at 15,800 strike followed by 15,700 and 16,000 strikes. Call writing was seen at 15,700 strike then 15,800 and 16,200 strikes, while minor Put writing was seen at 15,700 strike then 15,000 and 15,600 strikes. Techies expect the ongoing result season to provide some trigger for the Nifty to move out of the prevailing range of 15,600-15,900 levels. The Implied Volatility (IV) of Calls closed at 12.56 per cent, while that for Put options closed at 14.07 per cent.

The Nifty VIX for the week closed at 13.56 per cent. PCR of OI for the week closed at 1.32. Technical indicators suggest that volatility is likely to continue in the markets in near term. Nifty likely to face strong hurdle at 15,850 levels, while 36,000 level for Bank Nifty would continue to remain crucial.

Stock futures looking good are Alkem Labs, Biocon, InduSind Bank, Tata Steel, Torrent Power, Shriram Transport and Zee Entertainment. Stock futures looking weak are Aarti Inds, McDowell, Tata Motors, TVS Motors and Wipro.

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