Budget-2022 to set tone for markets

Ahead of the Union Budget week,; caution over faster US Fed rate hikes, inflation concerns, spike in crude oil prices, non-stop FII selling and geopolitical tensions between Ukraine and Russia triggered weakness in the market during the week ended January 28, 2022. The BSE Sensex plunged 1,836.95 points or 3.11 percent to close the week at 57,200.23 points, and the Nifty declined 515.20 points or 2.92 percent to 17,101.95, taking two-week losses to more than six percent. Following the benchmark indices, in the broader markets, the BSE Mid-cap and Small-cap indices also fell sharply.

FIIs net sold more than Rs22,000 crore last week, taking the total monthly outflow to over Rs37,700 crore, while DIIs have net bought more than Rs 10,800 crore during the week. With geopolitical tensions between Ukraine and Russia on rise, crude oil prices climbed up to $91.04 a barrel during the course of last week, the highest level since October 2014. Oil is always an important factor to watch out for as India is a net oil importer.

The rise in oil prices always puts pressure on India as the country imports more than 80-85 percent of oil requirement. Coming week will be dominated by Union Budget related news. Economists expect some major reliefs from the government to support the pandemic- battered economy and boost consumption demand. Income-Tax sops and slashing fuel taxes will be the key points to be watched out. Market players hope that the Union Budget would set the tone for the domestic markets amid the global sell-off.

Volatility remains high during the budget week so market participants should continue with a cautious stance and prefer hedged positions. More than 500 companies will release their quarterly numbers next week including SBI, BPCL, HPCL, IOC, Tata Motors, Sun Pharma, UPL, Adani Ports, Tech Mahindra, HDFC, GAIL, ITC, Titan, Divi Labs, Tata Consumer Products, Shree Cement, and Tata Steel.

Market Musings: For more than a year, it seemed as if the stock market could only go up, buoyed by a river of money that gushed from the government. In the past week, that illusion has been shattered across the globe. But what happens next isn't the right question to ask ahead of the Union Budget. In a speech in 1963, the great investment analyst Benjamin Graham said: "In my nearly 50 years of experience in Wall Street I've found that I know less and less about what the stock market is going to do, but I know more and more about what investors ought to do." Investors ought to do two things. First, put the market's recent fluctuations in long-term perspective. Then, recognize that what kind of an investor you are matters more than which investments you own.

Two factors had kept stocks rising smoothly until this month: government policy and investment automation. The US Federal Reserve's low-interest-rate stance, and trillions of dollars of stimulus spending across the world by the Central Banks, inundated the markets with cheap money. That drove stocks up. Chances are, you barely remember those declines. Investors are exceptionally adept at retroactively revising their memories. No one likes to admit fear or to feel foolish or incompetent, so we polish our own pasts; what was terrifying then becomes not so bad now. That's why it's so important to understand who you are as an investor. Falling markets set up a battle between your present self and your future self.

One reason stocks tend to have high returns over the long run is to compensate investors for the ever-present risk of losing at least half their money in the short run. The prerequisite for being a long-term investor is knowing whether you can accept that uncertainty. It's better to be too conservative and end up with a few rupees less than to overestimate your tolerance for risk and end up panicking and selling at the bottom.

F&O / SECTOR WATCH

Tracking the volatility in cash markets and Q3 earnings, derivatives segment witnessed brisk volumes in select sectors ahead of the Union Budget. Rollovers in Nifty futures declined to 74 per cent compared to 79 per cent in last series, well below 3-month average of 80 per cent. However in value terms, it was flat at Rs18,710 cr versus 17907 cr. On other hand, market wide rollovers stood at 91 per cent compared to 93 per cent. In value terms, it was higher than last month. On the option front, maximum Call Open Interest (OI) was seen at 18,000 followed by 17500 and 17300 strikes with Call writing at 18000, 17300 and 17500 strikes and Call unwinding at 17000 and 16900 strikes.

Maximum Put OI was seen at 16500 followed by 16000, 16700 and 17000 strikes, with Put writing at 16700, 17300 and 16500 strikes. Implied Volatility (IV) of Calls closed at 20.59 per cent, while that for Put options closed at 21.22 per cent. The Nifty VIX for the week closed at 21.07 per cent and is expected to remain volatile. PCR of OI for the week closed at 1.64.

Option data largely indicated that the Nifty could trade in the range of 16500-17750 levels in the Budget week. Bank Nifty is looking much promising as compared to Nifty as index can be seen trading above its short and long term moving averages. A fresh directional bias is likely to be seen after the Union Budget.

In the Union Budget, the government is expected to continue its focus on growth with an investment-oriented approach as the economy is in recovery mode, but with a plan for fiscal prudence. Focus on stocks related to Agriculture, Infrastructure, Consumption and Automobile sectors. Announcements on PLI side may give fillip to sectors like electrical mobility and capital goods. With PSU banks in far better shape, capital infusion is unlikely. Renewed buying interest was seen in select PSU banks after good Q3 results. Use dips to accumulate. There are much more gains to be made in this segment say observers.

Keep watch on Tata Motors, Maruti Suzuki, Bajaj Auto, TVS Motor, Eicher Motors, M&M, Escorts, and Ashok Leyland. Stock futures are looking good.

Federal Bank, IOC, Maruti, PNB, PVR, Sobha, and UPL. Stock futures looking weak are Bandhan Bank, FSL, Lupin, JK Cement and Voltas.

STOCK PICKS

Nava Bharat Ventures Limited is engaged in power generation, mining, ferro alloys and agri-business. The company's segments include Ferro Alloys, Power and Sugar. The company's power plants in Andhra Pradesh, Telangana and Odisha have a total power generating capacity of approximately 440 megawatt. The company manufactures Manganese Alloys and Chromium Alloys with a total installed capacity of approximately 200,000 tons per annum. The company's sugar plant, distillery, ethanol plant and cogeneration plant is located in Samalkot, Andhra Pradesh. In Tanzania, the company is engaged in commercial agro-based investments. In Laos, it is engaged in the development of hydro-electric power project. The company has presence in India, Southeast Asia and Africa. Review of Q3FY22 shows strong top-line growth riding on its Ferro Alloys and Standalone Power business operations. On International operations front, Zambian power operations remained stable with continued improvement in merchant coal sales. Buy on declines for target price of Rs200.

Bharat Dynamics Limited (BDL) is a public-sector undertaking under the Ministry of Defence, Government of India. Since its inception, BDL has been working in collaboration with DRDO &foreign Original Equipment Manufacturers (OEMs) for manufacture and supply of various missiles and allied equipment to Indian Armed Forces. The company designs and manufactures under water guided weapon systems. Milan - 2T is a man portable Infantry second generation ATGM, to destroy tanks fitted with explosive reactive armour, moving and stationery targets. Konkurs M ATGM is a second generation, semiautomatic, anti-tank, tube launched, optically tracked, wire guided and aero-dynamically controlled missile.

Invar (3 UBK 20) ATGM is weapon fired from the Gun barrel of T 90 Tank. initiative of the Government, BDL has taken up several measures such as creation of Seeker Facility Centre and Warheads production facility at BDL, launch of indigenously designed and developed equipment by BDL namely, Konkurs Launcher Test Equipment and Konkurs Missile Test Equipment, setting up of new facilities like Surface – Mount Technology, 'High Performance Computing facility'. As a part of its R & D efforts, BDL has developed Amogha - III, the third generation Anti-Tank Guided Missile. The missile will be offered after successful completion of user trials to the Indian Armed Forces as well as export market. Buy on declines for target price of Rs900.