Nifty could rally towards 11,000 after some consolidation in July series

With the start of the results season in the upcoming week, the market will become more stock-specific.

 

During the week, Nifty found support near highest Put base of 10,600 and staged a recovery as well. In fact, it has ended above 10,700 for the sixth consecutive week. The index has shown tremendous resilience, given the rupee depreciation from 67 to 69/USD during this period.

A weaker rupee has pushed up stocks in technology and pharmaceuticals space. Also, the buyback offer by Tata Consultancy Services (TCS) also kept the stock at a higher band.

As such, volatility has been lower, thus supporting the positive bias for Nifty. With the start of the results season in the upcoming week, the market will become more stock-specific.

The highest Call base for July series is placed at 11,000 strike, which means after some consolidation the Nifty can recover towards 11,000.

 

Bank Nifty: 26,200 remains a crucial support for upside to continue

The index has continued to hold 26,200 since June. Market participants respected the same levels in July as well from where the index rallied above 26,500.

Private sector banks continued to outshine, while midcap stocks such as Yes Bank and IndusInd Bank also saw a fresh upmove.

As US imposed sanctions of USD 34 billion on Chinese imports, trade war fears further intensified.

However, most of these cues are factored in and there is no panic which was seen last week. The 26,200 Put continued to see an addition in the past few weekly expiry.

Positions have also been formed in 26,400 Put which can be seen as an intermediate support for the index. On the Call front, OI is well distributed in 26,700 to 27,000 strikes that can be a potential target on the upside.

Looking at the increasing discount on the index, we feel a close above 26,700 is likely to trigger short covering. The price ratio of Bank Nifty/Nifty remained near 2.46 levels.

We feel the ratio is likely to improve and the outperformance in the banking stocks can be seen once the index manages to end above 26,700

Emerging markets cautious amid higher crude oil prices:

Emerging markets (EM) continued to remain under pressure as trade war concerns continue to remain an overhang. MSCI EM index tested almost one-year lows weighed down by weakness in EM currencies triggered by outflows.

Although US FOMC minutes were cautious about recent global trade friction, they continued to envisage strength in the US economy.

The Fed is expected to increase interest rates in September while probability is building up for a fourth rate hike in December 2018.

Emerging markets saw mixed flows in equities during the week. Indonesia (USD 65 million), Malaysia (USD 77 million), Taiwan (USD 705 million) and Thailand (USD 266 million) witnessed outflows.

In the upcoming week, market participants would brace themselves for a bout of volatility if the US moves further to impose tariffs on USD 200 billion of Chinese imports as announced earlier by US President.

We could see further pressure on emerging markets as well as currencies if the trade friction escalates to the next level of additional tariffs impositions.

 

MORE WILL UPDATE SOON!!

Rs 1.2 lakh crore boost for rural income! These 11 stocks are likely to benefit the most from MSP hike

The MSP hikes should impact 310-330 mn tonnes of agri production, 25 percent of agriculture’s GDP contribution and 4.5 percent of GDP.

 

The much-awaited decision on minimum support price (MSP) was finally made by the government this week. Rural income is likely to get a boost but at a cost of up to 20 bps impact on the fiscal deficit, according to analysts from top brokerages.

The government announced hikes of 4-53 percent in the minimum support prices (MSP) for summer crops. While details on the implementation of the MSP hike are awaited, government intentions are clearly supportive of rural incomes, CLSA said in a note.

The MSP hikes should impact 310-330 mn tonnes of agri production, 25 percent of agriculture’s GDP contribution and 4.5 percent of GDP. In nominal terms, as the MSP gets implemented, the positive impact on the rural income should be Rs 1.2 lakh crore.

The government, as of now, estimates the cost of these hikes at Rs150 bn-300 bn (10-20bp of GDP) but the final number depends on how the MSPs are implemented, highlighted the CLSA note.

The government approved the hike in MSP of all Kharif crops to 1.5x of the cost of production. Consequently, MSP growth ranged from 3.7 percent (for Urad) to 52.5 percent (for Ragi), implying production-weighted average growth of 15.8 percent in FY19 compared to 7.1 percent in FY18.

This is the fourth highest growth in MSP during the past two decades, with higher growth in FY08, FY09 and FY13, interestingly, all were closer to general elections.

Whether or not higher MSPs boost farmers’ income depends entirely on better reach and higher procurement of various procurement agencies of the center and states. However, it is sentiment-positive for the rural consumption.

Who would be the key beneficiaries?

Stocks in sectors related to consumption, autos, banks, NBFCs, are likely to benefit the most from the hike in MSP, suggest experts.

CLSA’s favourite rural plays are M&M, ITC, Dabur, Emami and Crompton Consumer. The rural largesse will, however, adversely impact the fiscal deficit (10-20bp) and inflation (30-50bp), raising macro concerns.

 

Rural consumption is picking up and urban consumption has been doing well too. Sectors like QSR and processed foods and discretionary segments like retail, jewellery, and apparel have shown a good pick-up in consumption already.

Autos, FMCG, NBFC and select Mid-caps are the natural beneficiaries of rural consumption pick-up, in our view. After the rally in last one year, valuations in the consumption pack are rich,” added the Motilal Oswal note. Key rural beneficiaries from the brokerage firm include names like Maruti, Mahindra & Mahindra, Hindustan Unilever, Britannia, Emami, MMFS, Coromandel.

However, given the strong earnings visibility, underlying macro triggers and quality management pedigree, we expect them to remain in focus in a volatile broader market environment.

MORE WILL UPDATE SOON!!

Good quality small & mid-cap stocks can be bought for higher returns

The Nifty made a V-shaped recovery in the past month after a panic-led fall, indicating that the market has stabilized in the immediate term.

 

Small and midcap indices have corrected by around 25-30 percent, while some stocks have plunged over 50 percent this year. But they seem to be nearing their bottom as negative sentiment has caused a deep correction in these stocks.

The Nifty on a weekly basis closed with gains of 0.54 percent. 

The Nifty made a V-shaped recovery in the past month after a panic-led fall, indicating that the market has stabilised and bottomed out in the immediate term.

On the weekly chart, correction phase seems to be tighter and a sideways movement is expected. The market is expected to be trading in a range-bound manner unless trade war fears and macro (issues) escalate further.

Bank Nifty seems to be trading in choppy waters, but has maintained a strong support at 26,000 levels. Since June, Bank Nifty has been trading in a tight range and we expect a sideways movement in the short term.

As far as other indices are concerned, small and midcap indices have corrected by around 25-30 percent and some stocks by over 50 percent. They seem to be nearing their bottom as negative sentiment has caused a deep correction in these stocks.

Good quality small and mid-cap stocks can be bought for higher returns in the portfolio.

Plenty of stocks hit fresh 52-week lows in July compared the ones which hit 52-week highs. The absence of buying in broader markets is likely to cap upside for markets.

Markets have shown high volatility in the past few months due to weakening rupee, high crude oil prices, trade war woes, and political ambiguity.

When markets are facing this kind of volatility, it is best to be patient and hold the stock instead of following the herd and selling them when the prices have fallen.

The stocks hitting lows need not necessarily be bad, but an unemotional assessment of quality check has to be done before taking any decision. If nothing has changed fundamentally, then they should be held on and added more in the portfolio.

Top 3-5 positional calls which could give handsome returns to investors in next 1 month?

Yes Bank seems to be a good positional call as it has had the longest consolidation and has taken support at 200-DMA.  ACC has decisively reversed the corrective fall and is likely to move higher.

Buy on dips should be a strategy for this stock. Endurance Technologies, which has made a crossover with its 20- and 50-DMA, is indicating a good positional buy. It has consolidated and stayed above 200-DMA in this corrective phase.​

MORE WILL UPDATE SOON!!