Global trends to drive near-term market mood

A bottom-up strategy focused on margin mean-reversion and undervalued laggards is advisable

MARKET KHABREIN

Stock selection should favour low-margin, low-valuation names with potential for cost-driven earnings recovery. Caution persists regarding potential tariff escalations, with US tariffs scheduled to resume from July 9 and focus will shift to trade agreements

Quote of the week

Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas

—Paul Samuelson

Buoyedby easing geopolitical tensions, supported by improving global sentiment, renewed buying interest from FIIs and sharp pullback in international crude oil prices; markets finally broke out of their five-week-long consolidation phase. The rebound followed a cautious start, with broader participation seen from midweek as sentiment turned positive.

For the week, the Sensex index rose 1,650.73 points or 2 percent to end at 84,058.90, and the Nifty added 525.4 points or 2.09 percent to close at 25,637.80. Mild exuberance was evident in the broader market with both the BSE Mid-cap and the BSE Small-cap indices gaining more than 2 percent and 3.5 percent respectively.

Reversing the four-week losing streak, the IndianRupee ended 110 paise higher at 85.49 per dollar. FIIs extended their buying in second week with purchases worth Rs 4,423 crore. DIIs continued their buying in tenth consecutive week buying equities worth Rs 12,390.17 crore. Nine of the top-10 most valued firms together added Rs 2,34,565.53 crore in market valuation last week, with Reliance Industries emerging as the biggest gainer, in line with a buoyant trend in equities.

With progress of monsoon a bit tardy, high frequency data points IIP and PMI figures will be in focus. A significant volume of pre-IPO shareholder lock-ins worth $ 1,860 million is set to expire in July 2025, potentially reshaping the shareholding structure of several recently listed companies. Such expiries are closely watched by market participants, as they can lead to changes in liquidity, free float, and shareholding patterns in the post-IPO phase.

Corporate India’s profitability is currently hovering near decade-high levels, and with scope of margin expansion muted, some experts believe sustaining this momentum may prove challenging. Post-Covid profits were led by restructuring, but margins are now peaking, and demand remains weak.

Valuations are expensive across sectors despite slowing earnings, posing downside risks say observers. A bottom-up strategy focused on margin mean-reversion and undervalued laggards is advisable. Stock selection should favour low-margin, low-valuation names with potential for cost-driven earnings recovery. In the near term, global cues will continue to drive market direction. Despite improved sentiment expect the unexpected speed breakers from Trump tantrums.

Caution persists regarding potential tariff escalations, with US tariffs scheduled to resume from July 9 and updates on trade agreements will remain in focus. The passage of Trump’s massive tax and spending bill in the Senate, moving the legislation one step closer to final approval may cast its shadow on US equities. Despite noise in social media that US-China trade deal is on cards, China has reiterated opposition to any trade deals at its expense. Watch developments on this front.

If you think investing is gambling, you’re doing it wrong. The work involved requires planning and patience. However, the gains you see over time are indeed exciting.

FUTURES & OPTIONS / SECTOR WATCH

Tracking the cease fire news in the Middle East, the Indian market rallied during the week ended. Both Nifty and Bank Nifty registered weekly gains of more than 2%. On the expiry day, the Nifty futures finally staged a decisive breakout from the recent prolonged consolidation phase and ended the June series above the 25,500 mark, registering a healthy gain of 2.69%. This breakout not only signals a potential shift in short-term sentiment but also sets a positive tone for the July series. The Nifty rollover rate remains steady at 79.53%, nearly unchanged from last month’s 79.10% and slightly above the three-month average of 78.09%, indicating similar momentum for the July series. In contrast, Bank Nifty rollover stands at 75.75%, lower than last month’s 79.29% and below the three-month average of 77.11%, suggesting weaker momentum compared to the previous series. Nifty rollovers indicate that positions were carried forward around the 25,200–25,300 futures range, while the Bank Nifty rollover range is 56,600–56,700 level. In the options segment, the highest Call open interest was seen at the 26,000 and 25,900 strike levels, whereas Put writing was prominent at the 25,500 strike. Implied volatility (IV) for Nifty’s call options settled at 11.87%, while put options concluded at 12.57%. The India VIX, a key indicator of market volatility, concluded the week at 12.59%. The Put-Call Ratio Open Interest (PCR OI) stood at 1.28 for the week. Failure to sustain the 25,200-25,300 level on Nifty and 56,600-56,700 level on Bank Nifty may lead to a decline in both indices. For the upcoming sessions, Nifty has support at 25200 level whereas resistance is placed at 26000 level. Stocks looking good are Kotak Bank, IRCTC, JSW Steel, MGL, Naukri, Shriram Finance, Tata Steel and Unominda. Stocks looking weak are Blue Star, IREDA, KPIT, Lodha, Mannapuram, Nykaa and NTPC.

(The author is a senior maket analyst and former vice-chairman, Andhra Pradesh State Planning Board)