Markets looking to global cues

Buoyed by positive global cues, decreasing new number of Coronavirus cases in India, encouraging macroeconomic data and renewed burst of optimism that an additional stimulus package to bolster the economy will be announced before onset of festival season; equity benchmarks staged a strong comeback during the week ended October 1, 2020.

The NSE Nifty jumped 366 points, or 3.3 per cent to close at 11,417 and the BSE Sensex vaulted by 1,308 points, or 3.5 per cent, to finish at 38,697 points. The NSE banking index Bank Nifty outperformed the bellwether indices and jumped, gaining 1,263 point, or six per cent. Broader markets performed in tandem with the benchmarks as the Nifty Mid-cap and Small-cap indices rose over three per cent each.

It is pertinent to observe that India's equity capital markets (ECM) activity hit an all-time high so far this calendar year and raised $32.7 billion during the first nine months of this year, up 87.7 per cent in proceeds from a year ago, surpassing the annual record set in 2007 ($31.2 billion).

Indicators like positive growth in the country's exports in September and increase in GST collections show that India will bounce back to high growth levels say observers. On the global front, the US Federal Reserve's meeting minutes in the coming week can lend direction for the global markets, apart from updates on the US President's health. Markets hate uncertainty.

Announcement of President Trump and the first lady testing positive for coronavirus jolted investors and added to the political uncertainty about a month ahead of the US Presidential election. In a tightly correlated market, investors holding cash would be better positioned to take advantage of buying opportunities in the event of another selloff.

Quote of the week: Big money is made in the stock market by being on the right side of the major moves. The idea is to get in harmony with the market. It's suicidal to fight trends. They have a higher probability of continuing than not. Martin Zweig

F&O/ SECTOR WATCH

Mirroring the exuberance in cash markets, derivatives segment witnessed heightened activity. The Nifty futures closed the week with gains of 3.56 percent with addition in futures Open Interest (OI) by 22.36 percent on a weekly basis, which indicates long build-up. In the options segment, maximum Put OI was at 10,500 followed by 11,000 strike, while maximum Call OI was at 11,500 followed by 12,000 strike.

Options data suggests a wider trading range in between 11,000 and 11,800 zone and also an immediate trading range in between 11,200 and 11,600 zone. The Implied Volatility (IV) of Calls closed at 17.76 per cent, while that for Put options closed at 18.73. The Nifty VIX for the week closed at 19.53 per cent. PCR OI for the week closed at 1.34 slightly down from the previous week indicating Put writing.

Bank Nifty futures closed the week with gains of 6.37 percent with a reduction in open interest by 2.48 percent on a weekly basis which again suggests short covering. Maximum Put open interest is at 21,000 followed by 21,500, while the maximum Call OI is at 22,500 followed by 23,000. Expect surprising sharp rally in Bank Nifty say punters.

Buy Vedanta, Hindalco and National Aluminium. Reports from Nalco indicate Bauxite Mines has achieved 73.02 lakh tonnes production which is highest ever since inception; and Alumina Refinery has achieved 102.9% of normative capacity (i.e. 21 lakh tonne) with production of 21.61 lakh tonnes of Alumina Hydrate, which is also highest ever since inception. Nalco has been rated as lowest cost producer of Bauxite and Alumina in the World for the year 2019. Buy at current levels for target of Rs60 in next few months.

The pick- up seen in September auto sales could boost select auto stocks and keep the bullish momentum in place for the near term. Stock futures looking good are ACC, Asian Paints, Britannia Inds, Hindalco, Infosys, National Aluminium, TVS Motors and Ultratech Cements.