Markets largely in consolidation mode

After having soared more than 11 per cent since the Union Budget, the markets were largely in a consolidation phase throughout the week ended following inflation concerns, spike in corona cases in some States and weak global cues. The Sensex slipped 654.54 points or 1.2 per cent to end at 50,889.76 and the Nifty shed 181.5 points or 1.2 per cent to finish at 14,981.8. Both the benchmark indices after hitting a fresh high of 52516.76 and 15,431.75 have corrected to 51,000 levels and 15,000-mark, respectively during the week.

However, broader markets outperformed as the Nifty Midcap and Small cap indices rose 1 per cent, each. FIIs continued the buying in the fifth straight month buying equities worth Rs 23,874.67 so far in February till date. Market players attribute market resilience to FII buying and expect the flows to continue next month as well aided by MSCI rebalancing. Emerging markets like India may continue to receive foreign investments, as long as central banks globally adopt an accommodative stance in order to bring their economies back on track from the impact of coronavirus pandemic.

Weekend article in WSJ suggesting that India's stock market mania defies economic reality is an eye opener on the ongoing 'irrational exuberance' in the markets say sceptics. But the market is priced for the most optimistic outcome for India, one which is by no means certain or even necessarily likely says observers. The government has tweaked the guidelines for strategic disinvestment, making security clearance mandatory for all bidders who put in price bids for buying a central public sector enterprise (CPSE).

The government has budgeted to collect Rs 1.75 lakh crore from disinvestment in next fiscal, up from Rs 32,000 crore estimated to be mopped up in current fiscal. Expect CPSE's to hog limelight for next few months. An abrupt and sharp rise in domestic as well as global bond yields was the major speed-breaker, which softened the excitement of equity market participants across the globe during the week ended. India's 10-year bond yield rose nearly 17 bps this week.

Bond yields are largely inversely proportional to equity returns. Therefore, when bond yields decline, equity markets tend to outperform, and as bond yields rise, equity market returns tend to falter. Flood of IPOs hitting the market are likely to wean away some funds from secondary market. Lack of any positive triggers may keep the market dull and range-bound in near term.

Therefore, investors are advised to use this opportunity to rejig their portfolios and remove the weaker stocks. Fresh investments can be made into quality bets on dips, as the market is in a longer term bull rally.

Heard on the street

The world's most popular cryptocurrency Bitcoin, rose to a record $56,620, taking its weekly gain to 18 per cent. It has surged more than 92 per cent this year. Digital currencies have the attention of the mainstream. However reports suggest that in India, government plans to introduce a bill that would ban private cryptocurrencies such as bitcoin and create a national cryptocurrency. Many investors may justifiably feel that buying bitcoin or other tokens directly as a way to tap into this momentum is too speculative or volatile. But it may be time for even the crypto-agnostic to start thinking about getting exposure to the emerging ecosystem around bitcoin and other digital assets - not necessarily for the value of those assets themselves, but how finance and banking might evolve because of them.

For consumers there is what is known as a 'wallet,' an account where they can buy, sell, move or pay with a digital asset. Most of these firms are still private, and some are highly specialised for crypto experts. But a couple of prominent firms are in the process of listing.

Even if bitcoin itself isn't a common way to pay, perhaps because people who hold it see it as a long-term asset, wallet providers bet that digital assets generally could become major payment methods. As much as some investors in banking and finance might be sceptical of bitcoin's rocket ride, they shouldn't take their eyeballs off crypto.

Futures & options / sector watch

Spurred by the news of 4 PSU banks privatisation, frenzied buying was seen PSU bank stocks. It was no surprise that the NSE PSU bank index has jumped by nearly 40 per cent in February itself till date. Many observers feel that the speculation is overdone and correction from current levels is not ruled out. It is pertinent to observe that the fresh proceedings under the IBC are suspended till March 24, and the government is exploring options to remove the suspension and allowing the resolution process in view of the rise in the number of fresh cases of default this fiscal year.

Stay invested in the sector but avoid buying on 'bulges'. Following a spike in coronavirus cases in some states, pharma stocks are expected to be back in limelight. With SEBI clearing decks for LIC IPO, market players expect insurance companies to witness heightened activity from funds. Recent weeks witnessed good delivery buying in HDFC Life and SBI Life. Use declines to accumulate the counters. Buy Dr Reddy's, Divi's Labs and Dr Lal Path Labs. Stock futures looking good are BPCL, Jubilant Food, Cholamandalam Finance, NTPC, Pidilite Inds, PEL and Zee Entertainment. Stock futures looking weak are Asian Paints, Aurobindo Pharma, Glenmark, Bharat Forge and Ultratech Cement.

Stock picks

Steel Exchange India Limited is engaged in the business of manufacture and sale of iron and steel products, and generation and sale of power. SEIL manufactures TMT Bars (Thermo Mechanically Treated) by using prime quality billets produced by its own steel melting shop, Vishakhapatnam Steel Plant, SAIL &Other integrated Steel Plants. 'Simhadri TMT' Bars are certified by BIS and confirms to IS1786-2008. The Integrated Steel Plant (ISP) of the Company is located at Vizianagaram District and consists of units, including Sponge Iron Unit, Rolling Unit and Captive Power Plant, among others. It is the biggest mini private integrated steel plant in Andhra Pradesh with 80MT/hour capacity in a 500 Acre layout, with railway sidings and located by the side of (Bailadila – kirundul) KK Railway Line. The capacity of the plant is 3 Lakhs tonnes per annum.

Why we are recommending the company:

• Presently steel industry is in upward cycle. Results of Q3 of the company reflect the buoyancy for company's products, which clearly show the increased profitability of the company

• The company has paid the full and final amount payable under the One Time Settlement approved by the lenders on 29-01-2021. For full year of 2020-21, we expect PAT of Rs 150 crores plus compared to previous year PAT of Rs 64 crores.

Buy between Rs 47–52 for medium term (nine to twelve months) price target of Rs 90-100. In the event of sharp correction in the broader market, stop loss should be at Rs 40. We are looking at a risk reward ratio of 1:6.

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