A wild week of trading likely at Dalal Street -All eyes will be on the money from the FIIs Camp if they continue to flow into equities.
As we start a new week to trading, there are two big positive catalysts:
1. The much awaited good news came on the weekend from Washington as the Senate Democrats pushed through a vote approving a USD 1.9 trillion economic recovery plan over rabid Republican opposition, sending the measure back to the House for final approval on Tuesday before President Joe Biden signs it.
2. Surging Wall Street in Friday’s trade thanks to reports of the U.S economy adding 379000 jobs in February and the unemployment rate falling to 6.2% as states began lifting lockdown restrictions and COVID-19 cases declined amid improved vaccination efforts. In Friday's trade, the Dow Jones Industrial Average finished up 572 points, or 1.85%, to 31,496, and the S&P 500 rose 1.95%. The tech-heavy Nasdaq gained 1.55% after trading lower earlier in the session.
The biggest concern for Dalal Street and equity investors across globe are the rising bond yields. The yield on the benchmark 10-year Treasury was at 1.552% on Friday, off one-year highs. Digging deeper, the Friday’s jobs data could trigger a renewed rise in government bond yields as investors likely bet on a faster post-pandemic recovery. Well, if the bond yield keeps increasing in the near future then there could be some FII outflow from emerging markets like India and could also impact emerging markets currencies.
Amidst this backdrop, all anxious eyes will be on the Federal Reserve's policy decision in the upcoming meet on March 16-17th. Fed has been promising that it would maintain interest rates low till the US economy rebounds to strong growth levels and keep buying treasury notes and mortgage papers to increase liquidity in the system.
Expect a wild week for our stock markets as India's active caseload of Covid-19 continues to rise over past few days sparking fears of a fresh wave of the pandemic in the country.
Also keeping upside capped are the fact that FIIs and DIIs Friday’s provisional data figure shows they sold shares worth Rs. 2014.16 crores and 1191.19 crores in the Indian Equity Market.
Rising oil prices also could hurt sentiments as WTI and Brent oil have settled at their highest settlements since 2019 on Friday, up more than 7% for the week, a day after the Organization of the Petroleum Exporting Countries and its allies, in a surprise move, said they would rollover current production cuts to the end of April.
Saudi Arabia also extended its voluntary output cut of one million barrels per day, which was due to expire at the end of March, through the month of April, though Russia and Kazakhstan have been allowed a modest production boost for next month. If the oil prices increase further it would be a reason to worry for India as it increases expenditure, resulting in an impact on fiscal deficit, experts feel. INDIGO could be a stock which can come under a bear attack.
The big question: Will Friday's panic at bourses continue?
The biggest negative catalyst from here on could be the higher bond yields which could spoil the party at global stock markets. In times like these, it makes lots of sense to keep low profile. Confirmation of strength only above Nifty’s only above its intermediate high at 15,273 mark.
Remember that cash is a position and even if we see a rebound in near future. Going all in long is not advisable until we have closed in bullish territory and confirming to the upside the following day. Our chart of the day says, at the moment there are more of headwinds than tailwinds. This was a market where overbought conditions prevail.
Establishing long positions advisable only if market breadth; indicating the overall health of the market stays positive for couple of days.
Please note, Nifty's 200DMA at 12,277 mark. The price action for Nifty is suggesting that we are likely to see a 13,501- 15,501 range in near term with negative bias.
Stay Light. Stay Nimble - that should continue to be the gyan mantra.
For aggressive traders however, the gyan mantra is to establish short positions on any excessive strength.
On the weekly, daily and intraday time-frames cracks are seen appearing.
The options data for March Series suggests Nifty is likely to be in a broader trading range of 14,500-15,500 as maximum Call OI is at 15,000 followed by 15,500 strike price. Maximum Put open interest stands at 14,000 levels followed by 14500 levels. Call writing was seen at 15,500 and then at 15,000 strike price, while there was meaningful Put writing at 14000 and then at 14,500 strike prices.
Preferred trade for the week:
Nifty (14939): Sell between 15,151-15,201 zone, targeting 14,771/14,467 mark followed by aggressive intermonth targets at 14,297 mark. Strict stop at 15,557.
Amongst momentum stocks looking bright on any corrective declines are: HEROMOTO CORP, MARUTI, CDSL, TATA STEEL, HINDALCO, RATNAMANI METALS, IDFC FIRST BANK, CANARA BANK, NMDC, JUBILANT FOODS, ICICI BANK.
Meanwhile, we are negative on stocks like: AXIS BANK, ASHOK LEYLAND, M&M FINANCIAL, BHARAT FORGE, BOSCH, LIC HOUSING FINANCE, PEL, SBI, ITC, EICHER MOTORS, ZEE ENTERTAINMENT and EQUITAS.
In economic news, the industrial production data for the month of January and CPI inflation for February will be released on 12th of March, while bank loan and deposit growth for the fortnight ended February 26 as well as foreign exchange reserves for the week ended March 5 will also be released on the same day.
Chinese inflation and PPI for February will be released on Wednesday, 10th March 2021.
Amongst IPO news, Easy Trip Planners will open its three-day public issue on March 8, at a price band of Rs 186-187 per share. The company targets to raise Rs 510 crore through IPO.
The month-long second part of the Budget session of Parliament begins on Monday in the middle of a high octane campaign for assembly elections in four states and one Union Territory. The main focus of the government in the second part of the session is to get the various demands for grants for the year 2021-22 passed along with the Finance Bill which carries various tax proposals.
Before we end, our most preferred pair strategies:
• Pair Strategy: Long HEROMOTO CORP and Short ASHOK LEYLAND.
• Pair Strategy: Long KOTAK BANK and Short AXIS BANK.
• Pair Strategy: Long INFOSYS and Short WIPRO.
(By Prashanth Tapse, AVP-Head Research, Mehta Equities)
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