Avoid chasing extended up moves and stay stock-specific
Buoyed by strong Q1 numbers, rupee appreciation on the back of renewed buying from FIIs, US Federal Reserve's in-line rate hike of 75 basis points and its hint at slowing the pace of further hikes and positive cues from global markets; the domestic markets extended gains for the second week. BSE Sensex rallied nearly 1,500 points to 57,570 and NSE Nifty reclaimed the 17,000
mark by gaining 439 points at 17,158. Modest underperformance was seen in broader market. FII selling was lower in July and the monthly outflow was lower than the DII inflow for the first time in the last 10 months. FIIs turned net buyers in 8 out of 21 sessions in a month for the first time after several months. It is pertinent to observe that July sales were Rs 6,568 crore against Rs 58,100 crore in June. The Indian rupee also came off its record lows and closed at 79.24 against the US dollar. RBI has been using forex reserves to prevent rupee volatility, but it can't use them for perpetuity, warn observers. International crude oil futures have gained around $7 week-on-week to close at $110 a barrel this week amid supply concerns and weakness in US dollar. Keep an eye on OPEC meeting outcome which could bring volatility in oil prices.
The key event to watch out for next week would be the Reserve Bank of India (RBI) monetary policy scheduled from August 3 to 5. With the retail inflation is still above the RBI's target range of 2-6 percent, economists expect the rate hike to be in the range of 25-50 basis points. Track the commentary and read between the lines for cues on future moves. Investors have taken comfort in recent days from the idea that slowing economic growth might encourage the Central Banks across the globe to raise rates at a slower clip. They also have been encouraged by positive signals during earnings season, as expectations for quarterly profit growth rose over the past month.
Key Q1 numbers to watch in the coming week include Amara Raja, ITC, SBI, GAIL, BHEL, Deepak Nitrite, HPCL, M&M, NMDC, and Titan. Major Adani Group companies-Adani Enterprises, Adani Power, Adani Transmission, Adani Green Energy, Adani Wilmar, and Adani Total Gas will also be announcing their numbers. Recent IPO's which have caused pain to investors Paytm (One 97 Communications), FSN E-Commerce Ventures, and Zomato will reveal their quarterly earnings. It is expected that while traditionally defensive pockets like IT and pharma may do well, some stock-specific moves from the metals, financials, and autos can't
be ruled out as well. It is recommended to continue staying stock-specific, avoid chasing the extended up moves and protect profits at each higher level.
Quote of the week: The stock market is filled with individuals who know the price of everything, but the value of nothing
That is testament to the fact that investing without an education and research will ultimately lead to regrettable investment decisions. Research is much more than just listening to popular opinion.
The August series started off on a positive note, in fact with a strong gap up opening on Friday followed by more than seven percent run in July series. Rollovers in Nifty futures were lower at 76% (last month 75%), well below 3-month average of 77%. However, in value terms it is flat at Rs16,909 crore. versus Rs20,144 cr. On other hand, market wide rollovers stood at 91% (last month market wide 92%) in value terms Rs177761 cr, which is lower than last month Rs176654 cr. Sectors that can outperform in the August Series are automobiles, banking, chemicals, capital goods, FMCG, media and realty.
On the Option front, maximum Call Open Interest (OI) was seen at 18,000 strike followed by 17,000 and 17,500 strikes, with Call writing at 17,100 strike then 18,000 and 17,200 strikes, while the maximum Put Open Interest was seen at 16,500 strike followed by 16,000 and 17,000 strikes, with Put writing at 17,100 strike then 17,000 and 17,200 strikes.
Implied Volatility (IV) of Calls closed at 15.87 per cent, while that for Put options closed at 16.69%. The Nifty VIX for the week closed at 17.01%. PCR of OI for the week closed at 1.45 lower than the previous week.
Overall data indicates that the Nifty could trade in the range of 16,800-17,650 levels in coming sessions. The bias is likely to remain in favour of bulls. No particular sector is likely to dominate and highly stock specific moves are indicated.
Ahead of RBI monetary policy scheduled from August 3 to 5, Financials will be in limelight. Observers suggest that Financials will participate in the next leg of the rally as credit growth is good and upcoming festive season. Monthly auto sales numbers for July will be announced by auto companies next week. Industry sources indicate that passenger vehicle sales numbers are likely to be good given strong demand and improving chip availability while commercial vehicle sales are also expected to be good on a yearly basis. However, there could be some seasonal impact on month-on-month numbers due to monsoon. In case of two-wheelers, likely muted demand may impact both yearly and sequential sales data while tractor sales may see seasonal impact. Tata Motors, Maruti Suzuki, TVS Motor, Bajaj Auto, Escorts, Mahindra & Mahindra, Ashok Leyland, Eicher Motors and Hero Motocorp will be in focus. Stock futures looking good are Aarti Inds, Adani Ports, Bata India, JSW Steel, HDFC Bank, REC and Sun Pharma, Stock futures looking weak are ACC, Bandhan Bank, Dr Reddy, Indiabull Hsg, IGL, Petronet and NAM-India.
HBL Power Systems Limited is engaged in the business of manufacturing batteries. The company's segments include batteries and electronics. The batteries and electronics segment consists of various types of products for defence, aviation, telecom and industrial application. Its products include batteries, including Lead Acid Batteries, Nickel-Cadmium Batteries and Specialized Defense Batteries; Power Electronics, which includes Thyristor Battery Charger, Switch Mode Rectifiers, Battery Monitoring System and Earth Leakage Monitor; Concrete Products, including Spun Concrete Poles, Spun Concrete Poles, Spun Concrete Poles and Hollow Core Slabs; Renewable energy, which includes Off-grid Solar Systems and HBL Green Products Division, and Engineering Solutions, which includes Training Simulators and Railways, including Data Loggers, Audio Frequency Track Circuit, Electronic Interlocking System, Train Collision Avoidance System, Train Management System, SPAD Alert System and Rail System Unit. Recently GoI has allocated 5MHZ spectrum to Railways. This will be used for TCAS (Train Collision Avoidance System). HBL is one of the main suppliers of this system. Expected orders on this front can be above Rs400 crores. Buoyant demand for the company's off grid solar systems. Excellent potential in renewable energy space. Buy for medium term target of Rs160.
Craftsman Automation Limited is a diversified engineering company in the manufacturing of precision components. The company's segments include Automotive-Powertrain & others, Automotive-Aluminium Products and Industrial & Engineering. The company is a leading player for machining of critical engine and transmission components, primarily for MHCVs, tractors and off-highway segments. Inspite of the current challenging automobile business environment, the company has grown in Powertrain segment by 42 per cent and registered highest ever turnover of Rs1,154 crore during the year ended. In the aluminium die-casting business and the company is primarily involved in casting and machining of parts like crank cases and cylinder blocks primarily for 2-wheelers and passenger vehicles. Leveraging its in-house engineering and design capabilities along with process capabilities, the company has created two sub segments (1) storage solutions, and (2) high-end sub-assembly and contract manufacturing products. The Industrial & Engineering segment develops, manufactures and sells goods and services, such as castings, gears, material handling equipment, railway products, special purpose machines, other general engineering products and storage products to various end user industries. Revenue split by business is Automotive Powertrain: 52 per cent Automotive Aluminium: 20 per cent and Industrial & Engineering: 28%. The Company also provides contract manufacturing services. Buy for medium term target of Rs5,000.
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