Avoid chasing illiquid assets

Amidst weak global markets, relentless FII sales, soaring inflation, rising bond yields and expectations of further monetary tightening by the global central banks; the domestic stock markets remained under selling pressure for the second consecutive week. For the week, BSE Sensex declined 2,041.96 points (3.72 percent) to close at 52,793.62, while the Nifty shed 629.05 points (3.83 percent) to end at 15,782.20 levels. In broader market, the BSE Mid-cap index lost 5.6 percent and the Small-cap index shed 6.5 percent.

It is pertinent to observe that in the month of May so far, both the Sensex and Nifty have lost more than seven percent each. In the month of May so far, FIIs have sold equities worth Rs32,701.03 crore and DIIs purchased equities worth Rs26,735.36 crore. With Rupee touching new low (77.63) in last week, Dollar-Rupee movement will remain in focus in the week ahead.

The CPI inflation in April 2022 surged to 7.79% (March 2022: 6.95%), while March 2022 IIP growth remained subdued at 1.9% (February 2022: 1.5%). The shares of the insurance behemoth LIC will start trading on Tuesday. Going by the issue price, it will make the company the fifth-largest company in the country with a valuation of nearly Rs6 lakh crore.

Only Reliance Industries (RIL), TCS, HDFC Bank and Infosys will be more valuable than LIC. Going by grey market trends where shares are exchanging hands at a steep discount of Rs25 over its issue price of Rs949, there is a good chance that the listing could be at a discount. Rainbow Children's Medicare (RCML), a multi-speciality paediatric hospital chain, made a weak stock market debut and is presently trading at an 18 per cent discount when compared to its issue price of Rs542 per share. Despite lack lustre listing of recent IPOs, coming week will witness three more IPOs opening for subscription. Bharti Airtel, DLF, IOC, ITC, Ashok Leyland, Lupin, Dr. Reddy's Laboratories, HPCL, NTPC andBharat Forge are among the companies coming with Q4 results in next week.

Listening Post: With markets off more than 15 per cent and several stocks down almost 30-35 per cent this year so far, many investors seem to feel they have to take more risk to catch up. In fact, you should take less. In unforgiving markets, it's harder to recover from mistakes. Over the past decade or more, stocks, bonds, real estate and cryptocurrencies—just about every asset—boomed. You often got rewarded for reckless risks and, even if you got punished, rising markets helped you recover quickly from your blunders.

That won't last forever. Investors generally can't get their money out daily, as they can at traditional mutual funds or exchange-traded funds. Instead, they can sell only at predetermined times, often four times a year, sometimes only twice. With many assets still near all-time highs, future returns will likely be lower, across the board, for traded and untraded investments alike.

Above all, don't take bigger gambles to try catching up. Riskier holdings, such as untraded equity and bonds, had looked safe during the bull markets of the last decade. But they could deliver 'bad returns in bad times' that aren't as fleeting as early 2020. If we get rising yields (as interest rates go up), more valuations will be challenged. If you take less risk now, not more, you will be able to swing at the fat pitches when they come. Lean toward assets that can benefit from inflation. Save more, spend less. Above all, don't take big risks to try catching up.

F&O/sector watch

Mirroring the weakness in the underlying cash market, the derivatives segment witnessed aggressive shorting from bears. On Option front, maximum Call OI (Open Interest) is at 17000 then 16000 strike, while Maximum Put OI is at 16000 then 15500 strike. Call writers were seen adding hefty Open Interest at 16000 & 16100 strikesm while Put writers hold marginal

Open Interest at 15800 strike. Implied volatility (IV) of Calls closed at 21.49 per cent, while that for Put options closed at 22.13. The Nifty VIX for the week closed at 24.27 per cent. PCR of OI for the week closed at 1.01 lower than previous week which indicates more call writing than Put writing during the week.

Option data suggests a wider trading range between 15500 to 16300 zones due to higher volatility. Traders expect markets to remain under pressure in coming week as well on back of continuous FII outflows on every rise. Though bank stocks have been laggards in recent times, observers of the sector and contrarians advice strong buying in select banks like ICICI Bank, Canara Bank, SBI and Kotak Bank. Stock futures looking good are Colgate, Cummins India,Kotak Bank, Powergrid, PVR and RIL. Stock futures looking weak areBEL, Bandhan Bank, Canfin Homes, Escorts, HPCL, Trent and Wipro.

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

STOCK PICKS

Matrimony.Com Ltd is an India-based provider of online matchmaking services. The company provides matchmaking services to its users in India and the Indian Diaspora through its Websites, mobile sites and mobile applications complemented by its on-the ground network in India. It manages various marquee brands such as BharatMatrimony, CommunityMatrimony, EliteMatrimony and Mandap.com. BharatMatrimony is considered the largest and most trusted matrimony brand which has also established a considerable retail presence with over 110 self-owned retail outlets across India.

Matrimony.com has also recently launched Jodii - a vernacular matchmaking service for common people. The company has over approximately 300 community and religion-based sites under the brand communitymatrimony.com, including christianmatrimony.com, muslimmatrimony.com. The company is contemplating a buy back offer price not exceeding Rs1,150 (Rupees One Thousand One hundred and Fifty only) per Equity Share. Buy on declines for price target of Rs1250 in medium term.

NLC India Limited is a CPSE with 'Navratna' status and is engaged in the business of mining of lignite (30.6 MMTPA), coal (20 MMTPA), and generation of power by using lignite (4640 MW) as well as renewable energy sources (1421 MW). The company's segments include Mining and Power Generation. The Mining segment is engaged in the mining of lignite.

The Power Generation segment is engaged in the generation of power and sale to power utilities across the country. Its main products include lignite mining, coal mining, thermal power generation, renewable energy generation, such as solar and wind and power trading. The company operates its power plants under the cost plus return on equity framework and net fixed asset model as outlined by the CERC. Power shortage will benefit the integrated power companies like NLC.

The company is likely to commission its 1980 MW power plant in NUPPL at UP by November, 2022. The company is expected to report strong FY 2022 numbers, as its standalone thermal plants reported 18.64 per cent rise in power generation to 29.2 billion units in FY22, which is the highest ever since its inception. Buy for medium-term target of Rs130.