Markets continue bull run amid positive cues

Fuelled by unabated FII inflows, expectations over the coronavirus aid package in the US, hints of negotiations between the UK and the European Union over a post-Brexit trade deal and positive domestic cues, the benchmark indices posted a seventh straight weekly gain, their longest winning streak since April last year. The BSE Sensex climbed 861.68 points or 1.87 per cent to 46,960.69 and the Nifty 50 rose 246.70 points to 1.83 per cent to 13,760.55, taking the total seven-week gains to over 18 per cent. Following the frontline indices, the broader markets also gained strength during the week, with the BSE mid-cap index rising 1.6 per cent and small-cap up 1.2 per cent.

In addition to over Rs 70,000 crore inflows in November, FIIs have invested around Rs 40,000 crore in Indian equities in December so far. The FII money has been acting as a key role in taking the market to record-high levels. Over the weekend during an Assocham event, Prime Minister Narendra Modi indicated that the controversial farm laws would not be repealed, saying farmers have started getting benefits of agricultural reforms. Observers say that the Indian economy is now growing at a slight margin over the previous financial year on a year-on-year basis, after showing a decline in the rate of India's Gross Domestic Product (GDP) contraction in the second quarter of FY21. There are clear indications from the GoI that the government's asset monetisation and disinvestment drive will go on aggressively, particularly in sectors such as power, shipping, ports and warehouses. The near-term direction of the markets will be dictated by FII inflows, currency movement, crude oil prices, developments on vaccine rollout and global cues. Avoid large-leveraged positions. Irrational exuberance was evident in pockets of market like the newly listed Burger king's share price tripled to its issue price.

The IPO's are subscribed as hotcakes which can also be seen in the new Mrs Bectors Food Speciality, which subscribed 199x, highest since 2017. Irrational exuberance is the psychological basis of a speculative bubble.

Heard on the street

Bitcoin topped $20,000 for the first time in its 12-year history. The digital currency's value has nearly tripled in 2020. Besides Bitcoins, other crypto currencies such as Etherium and Ripple are on an upside. Bitcoin has begun to win mainstream acceptance this year. Investors, including Paul Tudor Jones and Stanley Druckenmiller and companies such as Massachusetts Mutual Life Insurance Co, or MassMutual, have disclosed bitcoin holdings in the recent months. Other companies, including Square Inc, PayPal Holdings Inc and Robinhood Markets Inc have opened up their platforms to crypto trading. Reflecting the exuberance in crypto currencies, Coinbase will be the first major bitcoin-focused company to test the public markets. It is the largest US-based crypto currency exchange by trading volume and one of the largest crypto exchanges in the world.

The Indian crypto trade has also witnessed something of a revival on the back of the global run-up, but investors are still wary of the government's plans on this sector. Industry insiders believe that regulations will make this a much more vibrant industry with more retail and institutional participation. Indian regulators have been extremely harsh on crypto trading platforms. While the RBI outright asked banks to stay away from dealing with crypto exchanges, the Central government, time and again, has spoken about crypto in a negative light.

Within the policy circles, private crypto currency has always been looked upon with suspicion. Overall crypto activity which picked up post the Supreme Court judgment in March 2020, is yet to see an explosion in India, industry insiders pointed out. The Apex Court had overturned the RBI's decision to bar banks from dealing with crypto businesses, thereby getting exchanges back in business. Multiple new exchanges have also sprung up over the last few months. There are multiple crypto exchanges in the country like CoinDCX, Unocoin and WazirX. Indian traders can open digital wallets with these platforms, using 'INR' to buy Etherium, Bitcoin or other crypto currencies and then trade them on these exchanges.

Futures & options / sector watch

Reflecting the positive undercurrent in the cash segment, the derivative segment witnessed robust trading volumes. Bull strength was reflected in the Nifty closing above the 13,750-mark and the Bank Nifty also moving above the 30,700-mark. In the option segment, the maximum open interest in Call options was placed at 14,000 strike of approximately 33 lakh contracts and the 13,700 strike held the highest open interest for Put options of 23 lakh contracts. Fresh addition of calls was seen at 13,900 and 14,000 strikes; and fresh Put writing was seen at 13,500, 13,600, and 13,700 strikes.

The Implied Volatility (IV) of calls closed at 17.92 per cent while that for put options closed at 18.77. The Nifty VIX for the week closed at 19.16 per cent. PCR OI for the week closed at 1.98 indicates more puts writing than calls. Bias should remain in favour of bulls as far Nifty is holding above the 13500-mark. The overall option data indicates a broader range of 13,500-14,000 for the coming week.

The sector rotation in the markets is quite evident, with the traditionally defensive sectors like FMCG, consumption, pharma and IT looking up. With the liquidity fuelling the momentum, it would be prudent to approach the markets in a highly sector- and stock-specific manner. Adopting such an approach will help mitigate risks in the event of any broad consolidation happening in the markets. While avoiding both shorts and excessive leveraged exposures, a highly selective approach is advised over the coming week.

Taking cue from the results of global IT major Accenture, which indicate a robust tech upcycle, IT stocks witnessed strong buying interest ahead of the Q3 results. The vaccine progress continued to provide strong support to the equity markets globally. After some healthy consolidation, pharma counters were back in limelight. Use dips to buy Biocon, Cipla and Dr Reddy. Stock futures looking good for buying are Bajaj Auto, BEL, Cadila Healthcare, ICICI Bank, Infosys and Reliance Inds. Sell on rallies: Aurobindo Pharma, BPCL, Balakrishna Inds, PVR, Shriram Transport and UBL.

Stock picks

Filatex India Limited is engaged in the manufacture and trading of synthetic yarn and textiles. The company manufactures polyester and polypropylene multifilament yarn and polyester chips. Buy at current levels for target prices of Rs 65 (by the time of Q3 results) and Rs 85-90 (in 12 to 18 months).

NRB Bearings Limited is engaged in the manufacture of ball and roller bearing. NRB was the first company to manufacture needle roller bearings in India and has pioneered the leading edge of bearing technology, and today over 90 per cent of vehicles on Indian roads run on NRB parts. Buy on declines for target price of Rs 175 in the medium-term.

(The author is a stock market

expert. He is former vice

chairman of AP Planning Board)