June quarter earnings to set market tone

Buoyed by the drop in global crude oil prices, healthy start to earnings season, good progress of monsoon and positive global cues, markets logged impressive gains during the week ended.

The Sensex closed 884 points higher at 36,542 and the Nifty ended 246 points higher at 11,019. It is pertinent to note that the Sensex hit an all-time high, while Nifty and Bank Nifty both came close to their respective all-time peaks.

However, the broader markets underperformed the benchmark indices, with the mid-cap index gaining just 0.3 per cent and the small-cap index gaining only 0.85 percent during the week.

FIIs remained sellers in the cash segment but were seen hedging their positions by remaining buyers in the derivatives segment; while the DIIs did concentrated buying in index heavyweights.

IIP growth dipped to 3.2 per cent in the month of May compared to 4.8 percent growth recorded in prior month mainly due sluggish performance of manufacturing and power sectors coupled with poor off take of FMCG.

Consumer inflation increased to 5 per cent in June 2018 (lower than expected) compared with 4.87 per  cent in May 2018. With a lot of big corporate earnings scheduled to be announced, expect stock specific action in an action packed week.

The near-term trend will be dictated by June quarter earnings, progress of monsoon, domestic macro economic data, FII and DII activity, the movement of rupee, crude oil price movement and global cues. Emerging-market stocks and currencies rebounded this week as trade tensions eased in the absence of retaliation plans from China after US President Donald Trump’s latest escalation.

For the week ahead, chartists predict trading range of 36,000-37,000 and 10,875-11,150 for the benchmark indices. Support for the indices evident at 36,250 & 36,000 and 10,950 & 10,875.

The underlying trend of Nifty is showing tiredness of bulls at the highs and selling pressure likely from near the highs or all-time highs of 11,170-200 levels. The immediate support is now placed at 10,900-850 levels for the next 1-2 weeks.

Stock Scan
Hindustan Oil Exploration Company is country’s first oil and gas company. Its activities relate to exploration and production of hydrocarbons, which are natural resources. Its segments include Hydro carbon and Oil additives. Its products include crude oil and natural gas.  HOEC Bardahl India is the company’s subsidiary. HOEC portfolio now consists of 9 assets and all of them have discovered resources with some upside potential. The company is now a debt-free company with adequate cash to fund our organic growth. Growth strategy is to invest in projects where “Investment to Cash” cycle is 12 to 18 months. Buy on declines for target price of Rs 225.

Ipca Laboratories is a manufacturer and supplier of over 10 active pharmaceutical ingredients (APIs). The company’s formulations business now comprises of 14 marketing divisions focusing on key therapeutic segments and is the 20th largest in the domestic formulations market. It offers APIs, such as atenolol, hydroxychloroquine sulfate, morantel citrate, pyrantel pamoate and zaltoprofen. Its divisions also include innova, intima, pain management, pharma and uro sciences. The products of the Company are now exported to nearly 120 countries across the globe. Buy for medium term target of Rs1,250.

SEAMEC provides diving support vessel (DSV)-based diving services. The company is engaged in offshore and shipping business. It provides offshore oilfields support services through its multi support diving vessels. It has now diversified in commercial sector of shipping by acquiring a handy size Bulk Carrier keeping in mind the cyclic behavior of the Oil and Gas Industry. As per Baltic Dry Index, the segment of Bulk Carrier is expected to rise globally having impact both in terms of utilisation as well as the freight. ONGC’s plan of action, which centers around a large investment in offshore region, is going to boost domestic production. Revamping of pipelines and EPC contracts will be source of encouragement and opportunity for SEAMEC to utilize its proven resources by participating in the projects that may emerge. Buy for target price of rs 500.

Futures & Options
The derivative segment witnessed brisk and volatile trading during the week ended. After trading strong for better part of the week, Nifty Futures closed marginally weaker on Friday.

It is interesting to recall that correction of 475 points took 15 sessions, while the current rally of 520 points has been seen in just 10 sessions. Rallies getting bigger and faster signal a structural turnaround and positive bias in the index.

On the options front, the maximum open interest in put options is at 10,600 strike and maximum open interest in call options at 11,000 strikes. The Implied Volatility (IV) of calls closed at 10.61 per cent while that for put options closed at 10.20 per cent.

The Nifty VIX for the week closed at 12.51 per cent and is expected to remain sideways. True to predictions crossover of 10,775 levels with good volumes has propelled Nifty closer to its all-time high. Hold positions and add on declines say punters.

The week belonged to RIL which notched 12.5 per cent gains. Optimism about telecom business and plans to integrate Reliance’s consumer businesses with telecom and media are the biggest drivers behind the surge. Stay invested and buys on declines.  

Bank Nifty too saw some cooling off and failed to close above its recent high of 27,058, which is the resistance while support is at 26,870-levels.

For the current momentum to get extended, Bank Nifty has to close above the 27,150 zone convincingly. Results of InduSind Bank were stable and industry players are expecting good numbers from Kotak Bank and HDFC Bank. Numbers of new generation banks Bandhan and RBL are reportedly good. Use corrections to buy.

NIFTY IT has closed in green by around 3.7 per cent amid strong results by TCS and strengthening dollar against rupee. Expectedly TCS earnings beat analysts’ expectations, whereas Infosys reported a mixed set of numbers for the quarter gone by. Stay invested for gains in Wipro, TechM  and HCL Tech.

Stocks looking good are Apollo Tyres, Ashok Leyland, Britannia, Jubilant Foodworks, JSW Steel, KPIT Tech, Lupin, L&T and Marico.

(C. Kutumba Rao is an avid follower of stock markets. This newspaper is not liable for decisions made on the basis of this column. Views expressed in the article are personal views of the writer.)