Markets looking to global cues, Q2 results

Spooked by negative global cues, concerns over rising second wave of coronavirus in Europe and USA and lack luster stimulus package from GoI; the markets snapped its 10-day winning streak to close on a uncertain note during the week ended. The NSE Nifty shed 152 points, or 1.27 per cent to close at 11,762 and the BSE Sensex fell by 527points, or 1.30 per cent to end at 39,983.

Broader markets continued to underperform the benchmark indices. However, the Nifty Midcap and Smallcap indices were seen forming a higher base at their 80 per cent retracement. This has been backed by sturdy market breadth as currently 65 per cent stocks of Nifty mid-cap and small-cap indices are above 200 days SMA compared to last two week's reading of 55 per cent.

Catch up activity indicated as the Q2 results season progresses. Weed out non- performers and induct portfolio with good Midcap and Smallcap companies which are exhibiting good visibility of earnings for coming quarters. FIIs continued to be net buyers in October which could be one of supporting factors for the market, though DIIs remained on the sell side so far in current month.

However, it is pertinent to observe that investments through participatory notes (P-notes) in the Indian capital market dropped at September-end marking the first decline in investment through the route since March. Gold imports, which have a bearing on the current account deficit (CAD), plunged 57 percent to $6.8 billion (around Rs 50,658 crore) during the first half of this fiscal amid a slump in demand due to the Covid-19 pandemic.

In the coming fortnight, markets will look forward to the developments in the US presidential elections in the first week of November, Q2 earnings season, Covid-19 updates and visible green shoots in economy, an end to the moratorium saga and an update on the stimulus plan. Weekend results from the country's largest private lender HDFC Bank were in line with expectations.

Net profit rose by 18.4 per cent to Rs 7,513.1 crore for second quarter ended September 2020 (Q2Fy21) on substantial growth in interest earnings and other income. Key earnings to watch out for would be Hindustan Unilever, Asian Paints, Bajaj Auto, ACC, Nestle India, Britannia Industries, Tech Mahindra, Bajaj Finserv, Bajaj Finance, UltraTech Cement and Biocon. Results of recently listed SBI Cards and Rossari Biotech are also keenly awaited. The market is fighting with the uncertainty however, the street is eyeing on pre-Covid economic levels.

Heard on the Street: Individual-Investing Boom has fuelled trading in low-priced penny stocks. Zero-commission apps and online brokerages have given a boost in volume for sub-Rs10 stocks. To be sure, some of the activity in sub-Rs10 stocks was caused by the coronavirus-driven selloff in February and March. That temporarily sent some of the midcap and smallcap below the Rs10 mark.

Individual trading activity began to soar in late 2019, after several online brokerage houses started offering free stock trades, and it accelerated this year after the coronavirus forced millions of Indians to stay home with little to do. Retail activity has accounted for almost 20% of trading volume this year, nearly double the level from 2010. There was no clear driver for the rally in several stocks, barring a storm of social- media attention.

Quote of the week: The stock market is filled with individuals who know the price of everything, but the value of nothing- Phillip Fisher Investing without an education and research will ultimately lead to regrettable investment decisions. Research is much more than just listening to popular opinion.

F&O/ Sector watch

Mirroring the undercurrent in cash market, the derivatives segment witnessed sharp selling. In the option segment, the maximum Call option Open Interest (OI) was recorded at 12,000 and maximum Put option open interest was at 11,000.

Punters were seen booking profit at higher levels while Call writers were adding hefty OI at 11800, 11900 & 12000 strikes with marginal Put writing at 11,700 strike. The Implied Volatility (IV) of Calls closed at 20.51 per cent, while that for Put options was at 21.69.

The Nifty VIX for the week closed at 22.06 per cent. PCR OI for the week closed at 1.32 up from the previous week indicating Put writing. Going ahead on account of Q2 results season, expect Nifty to consolidate in the broad range of 11500-12000 with stock specific action. Stock futures looking good are ACC, Britannia, JSW Steel, Muthoot Finance, National Aluminium, SAIL, Tata Consumer, Tata Steel and Voltas.

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