Global cues, monsoon set tone for markets

Supported by global cues like fiscal stimulus package from the European Union (EU) for mitigating the pandemic's economic fallout, better than expected domestic macroeconomic data and driven by liquidity and momentum; stocks logged gains for sixth successive week. For the week ended July 24, benchmark indices -the NSE Nifty and the BSE Sensex -closed at multi- month highs at 11,194, up 292 points or 2.7 per cent and 38,128, up 1,108 points or three per cent respectively. The broader market underperformed the benchmarks as the BSE Mid-cap and Small-cap indices gained only a percent each during the week.

It is pertinent to observe that FIIs were net buyers during entire week, buying to the tune of Rs 7,792 crore, whereas DIIs were net sellers for the entire week, selling Rs 5,323 crore worth of stocks. Sectorally, financials, IT, infra and auto stocks outperformed other sectors. Skeptics say that market is trading ahead of fundamentals. There are still worries on the horizon, but at the same time, corporate earnings haven't been as bad as analysts expected say seasoned market players and add that earnings season has added some visibility that was missing. Based on valuation terms, the market in last few weeks has moved above the pre-Covid level due to the performance of a few sets of stocks like Reliance Industries with high weightage.

Reliance rallied 50 percent in last two months as it became net debt-free well ahead of its target of March 2021, and gained over 16 percent in last one week. In the last fortnight many states have reported coronavirus increases and some observers have grown jittery about the state of the economy. Market players have been keeping a close eye on corporate earnings reports for signs of whether business is picking up after the coronavirus brought economic growth to an abrupt halt for better part of Q1. Many expect a gradual and uneven recovery based on what it had seen in July. Silver lining for economy is that this year monsoon has been progressing very well. Reports indicate a shortfall in gross direct tax collection budget target by around Rs 3 lakh crore in FY21.

Near term direction of the markets will be dictated by the outcome of the US Fed meeting, F&O settlement, crude oil prices, rupee movement and FII flows. With earnings season in full flow, market will continue to witness stock-specific movement in the week ahead.

Heard on the Street: The day trader is now bored, isolated and out of work amid the pandemic. Millions of Indians are chasing stock-market glory by trading the markets like never before. Not everyone is a winner though. Brokerage firms like Zerodha in India and Robinhood in USA appear to have been successful in their mission of democratizing investing and pulling in younger users whose median age is 31. Isolation and extra time during lockdown have made day trading and its digital culture all the more appealing. Much of the rapid-fire day trading culture plays out on social media, which has helped usher in a new class of social-media influencers who hype stocks to followers eager for get-rich-quick stock tips.

They swap trading ideas over Twitter, WhatsApp and other digital platforms. Taking advantage of current fad, fly by night operators are engaging in pump and dump, one of the oldest forms of market fraud and involving people usually circulating rumors or fake news to lift a stock's price, while leaving buyers with shares that will soon plummet in value. The sad thing is many newcomers now think they're brilliant day traders with the touch of Midas. You know the old adage 'pigs get fat, hogs get slaughtered'.

F&O/ sector watch

Ahead of the settlement week derivatives segment witnessed brisk trading. Expect good rollovers to sustain market momentum say traders. Track stock futures with good rollover positions to spot winners of coming series. Options data indicates Nifty movement in the range of 11,000-11,350 in coming days.

Maximum Put Open Interest is at 11,000 and maximum Call Open Interest is at 11,500. Modest Call writing was seen in 11,200 strike and Put writing was seen at 11,100. Build-up of Calls at 11500 strike suggests bullish undertone. The Implied Volatility (IV) of Calls closed at 22.56 per cent, while that for Put options closed at 24.76 per cent. The Nifty VIX for the week closed at 24.64 per cent and is expected to remain sideways. PCR OI for the week closed at 1.63 indicating more Put writing than Calls.

For Nifty immediate resistance is placed at 11250 level, above which the rally can get extended towards 11,400 level. Analysts expect Reliance Industries (RIL) to enter the race — given that it is now net debt-free — besides Saudi Aramco, Rosneft, ExxonMobil, and ADNOC. It is pertinent to observe that Rosneft has already acquired Essar Oil. Ahead of BPCL bidding, expect rerating of IOC and HPCL. IOC can flare up to Rs125 in coming days. Prospects for oil marketing companies have improved after the lockdown, which had impacted demand in April and May.

Given that demand for auto fuel is improving, price hikes taken by companies recently will aid their financials

and marketing margins. It is pertinent to observe that as many as eleven stocks have reached 95 per cent exposure and are in ban list in futures. Expect sharp short covering/unwinding stock specific moves in coming days. Looking good in stock futures are Apollo Hospitals, Axis Bank, ACC, BPCL, IOC, Marico and Wipro.

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