Investors chary of rising inflation, pressure on GDP

Spooked by sustained high inflation, rising bond yields, escalation of Russia-Ukraine War, new sanctions on Russia; the domestic stock markets closed to finish a trading week shortened by Good Friday and other holidays on a weak note. Investors across the globe are presently worried about rising inflation, consumer spending and the prospects of an economic slowdown.

BSE Sensex shed 1,108.25 points (1.86 percent) to close at 58,338.93, while NSE Nifty fell 308.65 points (1.73 percent) to end at 17,475.7 level. Following the benchmark indices, the BSE Mid-cap Index shed 2.6 percent and the BSE Small-cap index fell 0.8 percent. FIIs were net sellers to tune of Rs 6,334.63 crore, while DIIs bought equities worth of Rs 1,794.36 crore. It is pertinent to observe that despite sporadic purchases on some days, in the month of April so far FIIs sold equities worth Rs 10,762.38 crore.

The rupee ended 28 paise lower at 76.18 per dollar. Hyperinflation and the risk of elevated policy rate hike placed the global market on its toes, impacting the performance of equities with rise in yields. Slight increase in Covid-19 cases coupled with higher positivity rate, especially in some cities like Delhi is becoming a cause for concern.

Seen in context of what is happening in China, investors may still keep a track of the health ministry data and any significant rise will impact markets.Government sources indicate announcement the IPO of Life Insurance Corporation (LIC) during the coming week as it plans to list it before May 12.

Institutional investors gearing up for it may trigger some selling in the market in sectors in which they are overweight. Near-term direction of the markets will be dictated by the earnings season, inflation data, international crude oil prices, developments on Russia-Ukraine war front, France Presidential election outcome and other global cues.

ICICI Bank, HCL Technologies, Mindtree, Nestle India, ACC, L&T Infotech, Mastek, Tata Elxsi, Cyient, ICICI Lombard, L&T Technology Services, Tata Communications and Hindustan Zinc would be some of the key companies coming out with results in the week ahead.Watch out for stock and sector-specific momentum in the coming days as market players decode results and management commentary of companies.

Listening Post: In unforgiving markets, it's harder to recover from mistakes. Over the past decade or more, stocks, bonds, real estate and cryptocurrencies—just about every asset—boomed. Investors often got rewarded for reckless risks and, even when punished, rising markets helped them recover quickly from their blunders.

That won't last forever. With many assets still near all-time highs, future returns will likely be lower. High recent returns make investors feel rich, naturally leading them to extrapolate further gains. But they are just borrowing them from the future. The more highly valued the holdings are, the lower their return is likely to be down the road.

Above all, don't take bigger gambles to try catching up. Riskier holdings, such as untraded equity and bonds, have looked safe during the bull markets of the last decade. But they could deliver 'bad returns in bad times' that aren't as fleeting as early 2020. If investors take less risk now, not more, they will be able to swing at the fat pitches when they come. Avoid chasing illiquid assets—some of which, like private equity, are no longer definitively cheap relative to publicly traded stocks.

F&O/Sector Watch

In the holiday shortened week, derivatives segment witnessed lacklustre trading. With soaring inflation and high oil prices weighing on sentiment, technology, auto, banks, financial services, metal and infra stocks dragged down the market. In coming weeks, stock-specific movements will be more pronounced and whipsaw movements can be witnessed as a result of earnings hits and misses.

On the options front, the maximum Call Open Interest (OI) was seen at 18,000 strike, followed by 17,500 & 19,000 strikes. Maximum Put OI was witnessed at 17,500 strike followed by 16,500 & 17,000 strikes. Major options bases are placed at Put 17,500 strike and Call 17,700 strike. Nifty's expected trading range as indicated by the options data moved lower to 17,200-17,800, from 17,500-18,300. Bank Nifty may find support in zone of 37200 to 37000 range. Implied volatility (IV) of Calls closed at 15.93 per cent and Put options closed at 16.79.

The Nifty VIX for the week closed at 18.16 per cent, which was slightly lower than the previous week. PCR of OI for the week closed at 1.33. Increase in raw material costs and semiconductor prices, coupled with supply chain disruptions due to the war in Ukraine, could become headwinds for the Indian automobile industry going forward this year thereby affecting growth say industry observers.

No need to be excessively exuberant on auto stocks. Temperatures in the country have been unusually high for the time of year since mid-March, resulting in a rapid rise in electricity demand. But the very low level of coal stocks at power plants at the start of the maximum annual demand period indicates power shortages are more or less inevitable over the next few months.

Despite cap on pricing of power at the energy exchange, power companies are enjoying 'cool' times. Demand for capital goods like air conditioners and refrigerators is 'booming'. Stocks in the sectors are expected to report good quarterly results. On Stock futures looking good are BoB, ITC, India Cements, IOC, JSW Steel, Sun Pharma and Voltas. Stock futures looking weak are Hero Motocorp, Godrej Properties, Intellect Design, Maruti,MFSL, Persistent and TCS.

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

STOCK PICKS

Welspun Corp Limited is a one-stop service provider offering complete pipe solutions. WCL has the capability to manufacture line pipes ranging from 1½ inch to 140 inches, along with specialized coating, double jointing and bending. The company is among the top 3 welded line pipe manufacturers globally and is also 2nd Largest Large Diameter Pipes Producer in the World.

The company is engaged in production and coating of high-grade submerged arc welded pipes, hot rolled steel plates and coils. The pipes, produced at advanced state-of-the-art global manufacturing facilities in India, USA and Saudi Arabia for Longitudinal (LSAW), Spiral (HSAW) and ERW / HFIW, meet stringent specifications.

The company's eminent clients (Fortune 100 companies) comprise leaders of the oil and gas sector (Shell, Saudi Aramco, TOTAL, Chevron, Energy Transfer, South Oil Company, Exxon Mobile, Kinder Morgan, TransCanada, Enbridge to name a few). The company is approved by 50+ major oil and gas companies, enhancing its ability to participate and bid in key projects globally. Buy on declines for target price of Rs 350.

Pricol Limited is one of India's leading automotive components and precision engineered products manufacturers and recognised as a reputable global brand in the automotive component and products business, highly recognised by top automotive OEMs across the world.

The company carries out its business and operations in Driver Information Systems and Sensors, Pumps and Allied Products, Telematics and Wiping Systems catering to leading automotive OEMs in Two / Three Wheeler, Passenger Vehicles, Commercial Vehicles, Farm Equipment and Offroad Vehicles across India and in International Markets (45+countries) with 2000+ product variants.

The company has 7 manufacturing plants across Coimbatore, Manesar, Pantnagar, Pune and Sricity in India, 1 manufacturing plant in Indonesia and 1 subsidiary in Satara in India, with 2 international offices in Tokyo and in Singapore. This has helped the company to register a very impressive growth in the current year as compared to the industry growth across all the vehicle segments served. Buy for short term target of Rs225.