Funds' focus seen shifting to primary market

Buoyed by strong GST collections, good PMI data, and favourable global cues; the domestic stock market recovered smartly during the week ended to close on optimistic note. The BSE Sensex climbed 760.69 points, or 1.28 percent, during the week to close at 60,067.62 points and the NSE Nifty jumped 245.15 points, or 1.39 percent, to 17,916.80 points. However, the broader markets outperformed the benchmark indices with the BSE Midcap and Smallcap indices rising 2.83 percent and 3.28 percent, respectively.

Punters expect to see midcaps start their relative outperformance once again. FIIs flows were again negative with net sales of Rs 686.85 crore. It is pertinent to note that FII sales during October were Rs 25,572 crore. It would be interesting to watch FII moves after the US Fed decided to reduce bond purchases from later this month. FII behaviour will be the most critical element from hereon for sustained recovery because they are selling continuously for past few weeks.

After the US Fed decision last week, considering the inflation RBI may modestly change its stance and begin liquidity tightening steps in its monetary policy meeting in December 2021, say observers of economy. Most of the companies continued to report robust numbers for the quarter ended September 2021, on the back of a reopening economy and rollout of vaccinations. However, the continued surge in commodity prices represents a significant countervailing trend and warrants caution in estimating earnings for Q3.

Near term direction of the market will be key macroeconomic data like inflation and IIP, last leg of Q2 earnings, FII flows, global cues and IPOs. Key results to watch out for in the coming week are Britannia Industries, Aurobindo Pharma, Mahindra & Mahindra, Power Grid Corporation, BOB, Zomato, Tata Steel, Coal India, Grasim Industries, Hero Motocorp, Hindalco Industries and ONGC. With big ticket IPOs lined up in coming days, market players fear shift of funds from secondary markets to primary market to impact the sustainability of relief rally witnessed in secondary market during the week ended. IPO Bazaar: Last week's IPOs FSN E-Commerce Ventures (Nykaa) and Fino Payments Bank are expected to get listed on November 11-12. Nykaa is reportedly trading at a price of Rs 1,775 in the grey market, a premium of Rs650 or 58 percent over expected final issue price of Rs 1,125 per share. The coming week is going to be very busy for primary market with three companies - Paytm, Sapphire Foods and Latent View Analytics making initial public offerings to raise nearly Rs 21,000 crore.

Parent One97 Communications will open Rs 18,300-crore Paytm IPO, the largest-ever IPO in history, between November 8 and November 10. The price band for the offer has been fixed at Rs 2,080-2,150 per share. Sapphire Foods (KFC and Pizza Hut operator) will launch its Rs 2,073-cr IPO on November 9.

F&O/ SECTOR WATCH

In the short three-day trading week marked by Diwali festival, the derivatives segment witnessed brisk trading with good stock specific moves. With the November series starting on 'light' positions, volumes were a bit low and the NSE Nifty moved in a narrower 315-point range. Markets rebounded from near the 50-DMA levels and also took support on an 18-month long upward rising trend line. Maximum Call Open Interest was seen at 18,000 strike, followed by 18300 &18500 strikes. Call writing was seen at 18,300 strike, then 18400 & 18500 strikes, with Call unwinding at 17800 strike. Maximum Put Open Interest was seen at 17000 strike, followed by 17500 & 17800 strikes. Put writing was seen at 17000 strike, then 17700 & 17900 strikes.

Techies indicate that if the Nifty slides below the 17,700 level then further weakness towards the 17,450-17,250 zone is not ruled out. Bank Nifty may start to show strong bullish momentum if it sustains above 41,000 levels. On the downside, 39,000 is immediate support while 38,500 will remain major support level. Volatility index, which measures the expected volatility in the market, fell by 9.64 per cent to 15.75 levels, from 17.43 levels on week-on-week basis. Select stocks from the sectors - Oil & Gas, infrastructure, banks, auto, pharma and public-sector undertaking (PSU) companies look good on the basis of the valuation, earnings and dividend yield. SBI reported better-than-expected net profit, net interest income and asset quality for Q2. Tata Motors plans to launch 10 EV products by FY26. Stay invested for steady ride to profits. Stock futures looking good are ABFRL, Delta Corp, Divi's Labs, Indian Hotels, Sun Pharma and Polycab. Stock futures looking weak are Biocon, Cipla, GSPL, Metropolis, UPL and Ultratech.

STOCK PICKS

Heritage Foods Ltd is one of the leading dairy companies in India. The company has two business verticals i.e. dairy and renewable energy. The company boasts of a diverse range of products including fresh milk, paneer, ghee, buttermilk, curd, UHT milk, lassi, flavoured milk, ice-cream/ frozen dessert and other dairy-based products. The company provides innovative, fresh and high-quality products to over 1.5 million consumers through its well-spread distribution network. The milk processing capacity of the company stands at 2.7 million liters per day. With an eye on the fast-growing value-added dairy segment, the company has established a Joint Venture company namely, Heritage Novandie Foods Private Limited (HNFPL) to manufacture and market various types of Fruit Yoghurt and other dairy products in India. The company has expanded into the non-dairy food products in the premium nutrition segment. Heritage Foods has further strengthened its balance sheet by achieving debt-free status with effect from November 1, 2021, with the repayment of all debt. Stock price can touch four figure mark in next 12 months.

Buy on declines for medium term.

Foods & Inns (FIL) is a manufacturer and exporter of a range of processed tropical fruits pulps, purees, and vegetables with state-of-the-art factories in Chittoor, Valsad, Sinnar and Gonde (Nashik). The company operates in the food processing industry and its principal divisions are Aseptic, Canning, Spray drying, Frozen fruits, IQF (Individually Quick Frozen) vegetables and snacks. Product range includes tropical fruit purees, concentrates of Mango, Guava, Papaya apart from tomato paste, natural fruit & vegetable powders. The company became a 99.99 per cent partner in Kusum spices (Spice brand established in 1972) from October 2, 2019 and has consequently widened its offerings in the foods segment. The company owns brands/trademarks such as Madhu - (Fruit Pulp), Green Top - (IQF Vegetables), Kusum Masala – (Spices), Triveni Global - (Frozen food) & Zatpat Zaldee - (QSR).

The company as an initiative towards sustainability and value addition entered into a joint venture on April 13, 2021, with a food technology company to convert its fruit waste into Pectin, oils and butter. The idea behind the venture is to upscale waste from mango processing to address its disposal and convert into pectin, which has a huge potential in India given that 95 per cent of India's pectin requirement is imported. The joint venture company is named Beyond Mango Pvt Ltd.

Buy for long term target price of Rs175.

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