Long-term investors can use correction

Spooked by PNB scam, higher trade deficit, sustained FII selling, and volatility in crude oil prices, markets ended marginally lower for the third consecutive week.

The Sensex and the Nifty closed almost unchanged at 34,011and 10,452 respectively. Market breadth re-mained weak amidst high volumes and lack of buying support reflects negative sentiment. Imports rising faster than exports and concern around the alleged fraud at PNB have overshadowed optimism that was driven by global cues. It is pertinent to observe that good pullback in global equity markets (US markets had best weekly gains in five years) could not move domestic markets much higher ind-icating no major upside in the near-term.

Expect some policy refo-rms ahead of Parliament session, say sources close to the Central government. The main worries about the Budget are the numbers. Budgetary allocations do not match the ‘grand’ announcements in healthcare and agriculture. However, fine print indicates financing would be off balance sheet and funds would be raised from the markets.

With RBI introducing a timeline for the country’s banks to recast bad loans and also scrapping previous methods, observers feel a shakeout in the PSU banking sector is imminent. Focusing on the LCGT is a narrow view of judging the present correction.  Without trying to second guess the market’s movement, long-term inv-estors can use the present correction for stock picking.

For the week ahead, cha-rtists predict trading ran-ge of 33,500 and 34,500 and 10,300 and 10600 for the benchmark indices. Supp-ort for the indices evident at 33,750 and 33,500 and 10,375 and 10,300.

stock scan

Thirumalai Chemicals Limited is engaged in manufacturing and selling chemicals. The company’s segments include chemical products and power generation from wind operated generators. The food ingredients and fine chemicals businesses have a strong International presence in over 30 countries for the last 25 years. A first phase expansion of th-ese units was completed recently, and has reach-ed full capacity. Further increases are under execution this year. Its Mal-aysia-based subsidiary Optimistic Organic Sdn Bhd has completed its Maleic Anhydride expa-nsion. A good visibility of earnings and strong fundamentals make the company a good buy for target price of Rs 3,500 in medium term.

Enkei Wheels (India) Ltd is engaged in the auto parts and equipment industry. Its operations include the manufacturing of aluminum alloy castings wheels mainly used in automobile industry in India. It holds the No.1 position for OEM supplier in the hybrid industry producing 2W & 4W aluminum alloy wheels of India. It has set clear targets in numbers for next couple of years. Buy on decli-nes for medium term target price of Rs 650.

Crompton Greaves Consumer Electricals Ltd manufactures and markets a range of consumer products. The Company’s main products/services include lighting products (luminaries and light sources) and electrical consumer durables (fan and appliances and pumps). The company has also developed exclusive online brand outlets on multiple e-commerce sites. Last year the company launched its own online brand store. This is part of effort to create an omni-channel approach for customers. Buy the stock for a target price of Rs 350 in the medium term.

Futures & options
Ahead of the settlement week, the derivative segment witnessed brisk trading. Sentiment indicators like open interest, implied volatility, VIX and put/call ratio suggest small recovery from current levels in near term. On the options front, the maximum open interest in put-options is at 10,500 strike and maximum open interest in call option is at 10,600 strike. Techies say Nifty has already broken the rising trend line support and is all set to move lower towards the 10,275-10,200 zone. Caution should be the watchword.

• PNB scam has put the scanner on public sector banking stocks during the week ended. The sharp decline in Bank Nifty Futures was mainly led by PNB, which corrected 19.93 per cent after the detection of the ‘Nirav Modi’ fraud. Going forward, 25,000 psychological mark is a crucial support for Bank Nifty. Avoid PSU Bank stocks for present. With the new bankruptcy rules shifting the balance in favour of the creditor from the borrower, creating greater accountability major companies, global funds are on prowl to buy good stressed assets. It could be a once-in-a-lifetime opportunity. Expect news driven sharp stock specific moves.
• Base metal counters may trade higher on rec-overy in global stock markets and resilient global manufacturing growth. During the week ended sharp rallies were seen in zinc, copper and aluminium. Buy Hind-alco, Hind Zinc and Veda-nta.
• After the data set of consumer price inflation and WPI inched lower and IIP showed a good growth; renewed buying interest was seen in FMCG and  capital goods counters. Use declines to buy God-rej Consumer and HUL. Start accumulating capital goods stocks.

(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.)