Market breadth is improving

Ignoring heightened global volatility and surge in global crude oil prices; and enthused by the Dovish policy measures by RBI in their bi-monthly policy announcement and expectations over Q2 earnings numbers, the markets closed on a positive note during the week ended. The BSE Sensex closed above 60,000 mark again, rising 1,293.48 points or 2.20 percent to 60,059.06 points, and the NSE Nifty jumped 363.15 points or 2.07 percent to 17,895.20 points. The broader markets continued to outperform the benchmark indices with the BSE Midcap and Smallcap indices gaining 2.43 percent and 3.95 percent respectively during the week.

It is pertinent to observe that the current up move in the broader market has been backed by improvement in market breadth with 75 per cent of index components trading above 50 days EMA showcasing the strength and durability of current uptrend. True to expectations, the RBI has maintained a monetary policy pause, keeping the repo rate unchanged and maintaining the 'accommodative' policy stance. This is the eighth consecutive time the MPC maintaining a status quo in rates.

RBI Governor sounded optimistic on the growth recovery in Indian economy. Moody's raised the outlook on India's sovereign rating to 'stable' from 'negative' in a revision after nearly two years, eliminating the chances of a downgrade to junk status. Near term direction of the market will be dictated by Q2 earnings numbers, rupee-dollar movement, international crude oil prices, macroeconomic data and global cues. Coming week will see first set of companies - Delta Corps, HFCL, Infosys, Mindtree, Wipro, Cyient, HCL Tech, Indiabulls Real Estate, HDFC Bank and Avenue Supermarts coming out with their Q2 numbers.

Expect stock-specific moves with markets 'rewarding' counters that come out with numbers exceeding market expectations and also 'punish' those that disappoint.

F&O / SECTOR WATCH

Mirroring the heightened volatility in the cash market, sharp stock-specific movements of over 10 per cent were seen in the derivatives segment. Options data shows Maximum Put OI is at 17,000 points followed by 17,500 strike, while maximum Call OI is at 18,000 followed by 18,500 strike. Call writing is seen 17800 and 17700 strike, while Put writing is seen at 17800 and 17700 strike.

Implied volatility (IV) of Calls closed at 14.19 per cent, while that for Put options closed at 14.88. The Nifty VIX for the week closed at 16.16 per cent. PCR of OI for the week closed at 1.47. Options data suggests a broader trading range in between 17200 to 18200 zones, while an immediate trading range in between 17500 to 17900 zones.

For weekly Bank Nifty, Maximum Put OI is at 37000 strike and maximum Call OI is placed at 38000 strike. Call writing is seen in 38000 and 37900 while Put writing is witnessed at 36500 and unwinding in 37500 strike. Above 37500 zones up move towards 37850 and 38100 levels is possible, while on the downside major support is seen at 37300 and 37000 levels.

Sectors like IT, Metals, Energy, specialist chemicals, Realty and Infra may give double digit growth and on the other hand sectors like pharma, auto and FMCG may see a decline in the earnings as compared to the Q2FY21. Q2 numbers of IT 'big daddy' TCS were slightly below the street estimates and can result in near term pressure on the stock.

Any correction in stock price would provide a good investment opportunity for long-term investors. Chemical stocks like SRF, Tata Chemical, Deepak Nitrite and Navin Fluorine continue to witness buying on every dip. Stay invested for further gains. Unlock trade counters PVR, Indian Hotels and IRCTC look good for short term. FMCG stocks Tata Consumer, Marico and ITC; and ahead of festival season white goods players like Voltas, Havells and Dixon Technologies may continue to see heightened action.

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

STOCK PICKS

Shanthi Gears Limited (a member of the Murugappa Group), is amongst the largest players in the industrial gears segment in India, which is engaged in the business of design, manufacture, supply and servicing of gears and gear boxes. The company is manufacturer of wide range of power transmission components including: Gears, Gear boxes, Geared motors and Gear assemblies The company's portfolio of products include worm gear boxes, helical and bevel helical gear boxes, geared motors, cooling tower gear boxes, extruder gear boxes, rolling mill gear boxes, and textile gears and gear assemblies. Its custom-built products include loose gears, which include spur/helical gear, pinion shaft, internal gears, worm and wheel, straight bevel gear and spiral bevel gear, and its special gearboxes are catered to cement, mining, power and steel industries. It offers various services, such as reconditioning of gear boxes and foundry.

Why we are recommending

1. The company has complete portfolio of Standard & Custom made products in Helical, Bevel Helical, Planetary and Worm segments. Gears from a few mm dia to 3,200 mm dia with special focus on Gears and Pinions for Defense, Railways and Export markets.

2. Strong market presence in Worm Gear boxes & Worm Spares. Focus industries – Steel, Power, Cement, Mining, Sugar, Off-Highway, Defense and Railways. Special Gear Boxes for industries like: Cement, Mining, Power, Paper, Steel, Rubber and Chemical.

3. Clientele include Tata Motors, Caterpillar, L&T, JSW Steel, Eicher Motors, HAL, Bombardier, Demag and others.

Menon Piston Ltd is a part of the Menon Group, the multi-product, high end critical auto components group with 9 companies in its fold, & globally positioned with business activities spanning 24 countries around the globe exporting 35 per cent of its production. The company is engaged in manufacturing of auto components and is amongst Asia's leading manufacturers of full piston assemblies such as pistons, gudgeon pins and rings required for commercial and passenger vehicles.

Why we are recommending

1. Customer list boasts of top auto brands across the world like Maruti Suzuki, Tata Motors, Escorts, BEML, Eicher, Lombardini, Cummins and others.

2. Menon Pistons Ltd has been awarded 'Self certification / Single Source / Ship to use,' status by leading auto brands across the world.

Nile Limited is engaged in the manufacturing of lead and lead alloys. The Lead Division produces lead and lead alloys. The company's products include Lead Antimonial alloys, Lead Selenium alloys, Lead Calcium alloys and Lead Tin alloys. The company's Lead recycling capacity is 82,000 tons per annum.

Why we are recommending

1. It will be the first Lithium ion battery recycler in India.

2. It expanded capacity of existing plant in AP commissioned recently. This will significantly contribute to numbers in coming quarters.