We suspect cautious optimism could be the preferred theme as the U.S April nonfarm payrolls report were the worst on record, reflecting job losses claimed by the coronavirus pandemic. We believe world over — the economic reality is much worse than the U.S jobs numbers suggest.
Focus will immediate shift to MSCI which is due to announce the results of its semiannual index review on May 13 which will include a list of stock additions and removals along with changes in weightings. All changes will be made as of the close of May 29, 2020 (effective June 1, 2020). The street suspects, momentum stocks like Tata Consumer, Indraprastha Gas, Biocon, Muthooth Finance are the probable stocks that can be included while Bharat Forge and Tata Power may be excluded.
Also commanding attention would be the movement of Reliance Industries as the firm has has fixed May 14 as the record date for determining shareholders eligible to apply for its upcoming rights issue. Reliance Industries had earlier on April 30 announced fund raising of Rs 53,125 crore by way of a 1:15 rights issue, the first such issue in nearly three decades, as it steps up efforts to pare debt. One share will be offered for every 15 shares held at Rs 1,257. The rights issue opening and closing dates will be informed separately.
On economic front, the CPI, Manufacturing Output, Cumulative Industrial Numbers & Industrial Production numbers for India are slated to release on Tuesday, May 12th. Also please note that on Thursday 14th May, WPI Inflation numbers are slated for release.
Meanwhile, the FIIs action and also the DIIs action at domestic bourses will be keenly watched. The movement of USD/INR will also be tracked minutely. At the moment, concerns over coronavirus and the consequent economic distress are weighing on the rupee, which along with outflows from local equities may push the rupee to sub-77.50 levels soon. A lower rupee will make imports more expensive for India.
Important Q4 earnings to trickle in this week:
• Monday: WOCKHARDT, PEL, GODREJ PROPERTIES,
• Tuesday: HAVELLS, BANDHAN BANK, BLUE STAR.
• Wednesday: SIEMENS, KOTAK BANK, MARUTI, DR. REDDY’S, GODREJ CONSUMER
• Thursday: TV TODAY, MANAPPURAM, OFSS, TATA CONSUMER, BIOCON.
• Friday: CIPLA, M&M FIN, Nippon AMC, L&T Tech.
Volatility likely to be hallmark of this week’s trade as May 17th will be the last day of the phase 3 of the lockdown. The street will anxiously hope for some easing of restrictions. However, sharp rising cases threaten an extension of lockdown with stricter measures, even as unemployment and economic plight are likely to rise.
That could make things rough for Dalal Street. Blame it to news surrounding the COVID-19 pandemic. At last check the total number of infected cases crossed 4 million mark worldwide with more than 2.7 lakh deaths and more than 1.4 million recoveries. The number of infected cases in India crossed the 62,000 mark with 2101 deaths and more than 19000 recoveries. Caution is warranted as the coronavirus has devastating impact on society and most importantly, on the economy.
The big question: How bad?
Honestly speaking, making short-term market prognostications is not easy. Many market participants will concur that it’s a fool’s errand. Perhaps it could be. But at the moment there are catalysts which are tilting in favor of negativity. This market is clearly losing momentum, and many a momentum stocks are looking overbought. There is high probability that we are likely to witness significant selloff. The momentum indicators are still flashing red. And amid this backdrop, there is a significant and rising risk of Nifty crashing to 10,000
Well, the most negative catalyst surrounding is COVID-19. We say so because the Indian economy is in a free-fall as a result of the coronavirus outbreak as most of the economic aspects are too bleak. So COVID-19 will continue to haunt us the pandemic comes without a certain end date.
We suspect, the street will not get confidence until there is a medical solutions to COVID-19.
Long story short: Agreed, the fear is down. But, hope is not a prudent strategy.
Meanwhile, there are some key positive catalysts from economic standpoint, like:
1. RBI a whopping 75 basis points cut in the repo rate, bringing it down to 4.4%, its lowest ever should boost optimism as credit flow likely to begin. We suspect, the rates drop further to 3.50% by June-August 2020.
2. Finance minister Nirmala Sitharaman had rolled out a ₹1.7 trillion relief package. To jump start the economy, the Indian Government is likely to come out with more fiscal stimulus. Finance Minister Nirmala Sitharaman has reiterated India would soon announce fresh relief measures and economic stimulus. However, she did not provide any timeline for the same.
3. Lower global interest rates particularly in the U.S and most importantly, higher liquidity should bring more capital allocation to India.
4. China's production activities to remain subdued and also long-term structural shift from China quite likely. Emerging markets like India may attract a large number of foreign businesses and investments.
From a chartist standpoint, our call of the week suggests that the technical landscape for swing traders has weakend considerably after last week’s sharp declines, indicating the worst is not yet gone. It is still not appropriate for long term investors who see April’s strength as light at the end of the tunnel — on the contrary, it could be an oncoming train…
Volatility will continue to be the hallmark in this week’s trade amidst overbought conditions. Technically, the most watched hurdles on Sensex/Nifty are at 34101/10101 mark respectively. Above 34101/10101, the biggest hurdles to watch are at 36001/10601 respectively. Please note, confirmation of strength only above Sensex/Nifty 36001/10601 mark on closing basis.
For perma-bull investors, the gyan mantra is that only on any sharp panic fall to support levels indicates time to buy as there may be some specific buying opportunities emerging from all the panic. Supports for Sensex are placed at 30711 and then major supports at 28757.
Preferred trade for the week: Investors could lose some appetite for risk if the benchmark moves up.
Sensex (31643): Sell between 32501-32751 zone, targeting 30711 and then aggressive targets at 28757/25601. Stop at 34333.
Amongst momentum stocks looking bright on any corrective declines are: BIOCON, SANOFI, ABBOTT INDIA, GLAXO, DIVIS LAB, DR REDDYS LAB, SRF, AAPL, GRANULES, CANFIN HOMES, HDFC LIFE and ASIAN PAINTS.
Meanwhile, we are negative on stocks like: ASHOK LEYLAND, BANK OF BARODA, BHEL, CANARA BANK, COAL INDIA, DLF, ICICI BANK, LIC HOUSING FINANCE, L&T FINANCIAL, M&M FINANCE, MARUTI, NMDC, PNB, PVR, SBI, TATA MOTORS, TATA POWER, TECH MAHINDRA, ULTRATECH, TITAN, ZEEL
Meanwhile for this week, our most preferred pair strategies are:
• Pair Strategy: Long HDFC BANK and Short BANK OF BARODA.
• Pair Strategy: Long SIEMENS and Short LARSEN.
• Pair Strategy: Long DIVIS LAB and Short GLENMARK.
• Pair Strategy: Long JSW STEEL and Short VEDANTA