All eyes on Q2 earnings, micro data

Buoyed by better than expected GST collections, expectations over Q2 earnings, strong advance data over credit growth by banks and mixed global cues; the domestic markets logged gains during the week ended. BSE Sensex rose 764.37 points or 1.33 percent to close at 58,191.29, while NSE Nifty added 220.3 points or 1.28 percent to end at 17,314.65 level. In the broader market, BSE Mid-cap and the BSE Small-cap indices added two percent and 2.5 percent respectively. Indian rupee touched a fresh record low of 82.42. The INR ended 98 paise lower to end at 82.32 per US dollar. The rise in crude oil prices, higher bond yields and upsurge in the US dollar index have dented the sentiments for the Indian currency. While FII selling pressure, a depreciating rupee put pressure on equities as the rupee made fresh lifetime lows. FII buying in the early part of the week turned to aggressive selling during the later part. DIIs bought equities worth of Rs1,024.09 crore.

Market observers say that the outperformance by the Indian equity benchmarks over their global peers will continue for some more time and attribute the trend due to consistent domestic flows and better economic performance. International crude oil prices have perked up to a three-week high as OPEC+ producers have decided to cut oil output by 2 mbpd, the largest production cut since 2020. Weak rupee coupled with spike in crude prices is trouble for an import oriented economy like India say analysts. The foreign exchange reserves fell to theirlowest level since July 2020.

Near term direction of the market will be dictated by the Q2 earnings, macroeconomic data, international crude oil prices, rupee-dollar movement, news flow on Russia-Ukraine conflict and US inflation data. Some economists fear that the US Federal Reserve is risking another blunder by potentially raising interest rates too much to combat high inflation and potentially triggering a deeper-than-necessary downturn. Key results in the coming week are from TCS, Infosys, Wipro, HCL Tech, Bajaj Auto, Shree Cement, and HDFC Bank. The combined weightage of these companies in the NSE benchmark index is nearly 23 percent. Expect stock-specific action to define the week ahead.

Listening Post: For investors, the only thing worse than losing is having to admit that you're a loser. Looking at our losses won't make them any smaller. But it might make us feel smaller. And it's natural to avoid looking too closely at any evidence that might undermine our belief that we are skilled investors. In down markets, however, making good decisions often requires admitting things about ourselves we would much rather ignore. Just about every investor recognizes the wisdom of the old saying, "Cut your losses and let your profits run."

But the only thing worse than losing is having to admit that you're a loser. So most investors will avoid selling an investment when it's down. You can pretend that a paper loss isn't there, or that it will just work out later. On the other hand, you can't realize a loss without realizing that you've made a mistake. One of the best ways to determine whether you should quit is to design, in advance, "kill criteria." That commits you to a set of conditions an investment has to meet—or else be sold.Let's say you bought bitcoin last year because you believed it was a protective hedge against inflation. Putting kill criteria in place would have committed you to something along these lines: "If bitcoin goes down when inflation goes up, my thesis has been disproved, and therefore I must sell if I lose at least 25% in a period when inflation exceeds 5%."Other people might have different reasons for owning bitcoin, but you can't switch kill criteria after the fact. When your rationale turned out to be wrong, you would have had to sell, thereby avoiding much of bitcoin's nearly 60% drop this year.For most investors, buying and holding is usually the right decision. But getting rid of your losers doesn't make you one, too.

Quote of the week: "The individual investor should act consistently as an investor and not as a speculator." — Ben Graham

You are an investor, not someone who can predict the future. Base your decisions on real facts and analysis rather than risky, speculative forecasts.

F&O / SECTOR WATCH

Amidst high volatility, markets recouped some of the losses incurred in the earlier fortnight during the week ended. Renewed buying ahead of results in the metal, reality and IT stocks supported the Nifty. Nifty reclaimed 17300 level and the Bank Nifty ended the week with gains of more than 1.25 per cent. Implied Volatility (IV) of Calls closed at 17.93 per cent, while that for Put options closed at 19.06 per cent. The Nifty VIX for the week closed at 19.32 per cent. PCR of OI for the week closed at 1.67. Activity in the market for index and stock options is hitting a fever pitch, with many rushing to trades expiring within mere hours or days to play the wild market swings. Options contracts that expire in less than a week make up about half of all activity. For some traders, the short-lived trades are a way to profit from the sharp one-day moves that have become a feature of the market this year and to ride the intraday momentum. The price of an option can change rapidly as it approaches the expiration date, allowing buyers to profit quickly if the market moves in their favour. Alternatively, the approaching expiration date can be attractive for sellers looking to lock in income earned from selling an options contract, if its value collapses.

These approaches can be risky and saddle traders with big losses. Nifty is expected to trade in broader range of 17200-17500 levels, while Bank Nifty likely to face strong hurdle in zone of 39500 to 40000 levels. Keep focus on sector-specific and stock-specific actions. Both Nifty PSU Bank and Private Bank index have surged nearly 24 per cent each in the September quarter, while Nifty Bank index gained 16 per cent. Investors continued buying banking stocks amid expectations of strong growth in the September quarter on the back of healthy margins and a drop in loan loss provisioning. Industry observers say the sharp 190-basis-point increase in the policy rate since May and its transmission will lead to higher net interest income (NII). This will lead to improvement in the net interest margins (NIM). Loan growth is also likely to be solid. Analysts also expect treasury losses for the lenders to be minimal as bond yields were stable in July and August after rising in September. Overall bond yields have fallen 5 basis points (bps) in the September quarter, the first drop after four quarters. In the June quarter, bond yields surged 61bps and by 31bps in the March quarter. Stay overweight on banking and financials. Stock futures looking good are ABB, HAL, IDFC First, Maruti Suzuki, Siemens and McDowell.Stock futures looking weak are CUB, GSPL, Pidilite, Sun TV,UPL and Ultratech.