Metals Suffer the Severest Beating
The August futures and options series turned out to be scintillating for Nifty as it advanced nearly 5.7 per cent during this particular month’s series. However, despite delivering blistering returns of 5.7 per cent during the August series, the mood on D-Street was disheartening and there were two key reasons: one was the sheer underperformance by the broader markets and the second was the weak market breadth. The Nifty Mid-Cap 100 is down by 1.43 per cent while the Nifty Small-Cap index has plunged more than 5 per cent during the same period. Over-two thirds of Nifty 500 stocks declined in August, acting as testimony of weak market breadth.
The main architects of this rally were Nifty IT and Nifty FMCG sectors. The Nifty IT index has delivered double-digit gain of nearly 12 per cent on a MTD basis while Nifty FMCG jumped 7 per cent. Interestingly, nearly 90 per cent and 80 per cent components of Nifty IT and FMCG indices delivered positive returns during the same period. On other hand, Nifty Metal witnessed change of fortune in the month of August as it plunged more than 6 per cent on MTD basis. What is more disturbing is that only one stock out of 15 stocks from the Nifty Metal index closed in the green.
Meanwhile, six stocks out of 15 have witnessed a fall of more than 10 per cent with SAIL being the top loser as it has lost 18.86 per cent. This certainly indicates that metal stocks have been under some hammering and therefore caution is warranted for the time being in the metal stocks. Amidst all this, there were big announcements made by the government during the week. One of the most prominent among them was the one related to the National Monetisation Pipeline (NMP). The government has unveiled a four-year NMP worth an estimated Rs 6 lakh crore.
As per the plan, the government aims to raise Rs 88,000 crore through asset monetisation in the current fiscal followed by 1.6 lakh crore in 2022-23, Rs 1.8 lakh crore in 2023-24 and Rs 1.6 lakh crore in 2024-25. Though this announcement sparked some buying interest in the infrastructure-related stocks, the frenzy soon fizzled out as gains for these companies would depend on the successful implementation of the scheme. The monsoon, which spans from June to September, is essential for the Indian economy. Of the four-month long monsoon, July and August account for nearly 70 per cent of the country’s seasonal rainfall.
The all-India rainfall in the month of July ended with deficit of 1 per cent and this deficit has only exaggerated in the month of August as on Wednesday the all-India rainfall deficit has been pushed to 10 per cent below normal. More importantly, the erratic monsoon has left some important kharif-producing states such as Gujarat with 58 per cent deficit rainfall. However, CRISIL in its Quickonomics report has mentioned that despite pockets of stress in some parts of the country due to deficient rainfall, they do not yet see cause for alarm for overall agricultural growth.
CRISIL expects the sector to grow at 3 per cent year-on-year in the current fiscal over 3.6 per cent last fiscal. August was good for frontline indices; however, we believe the month of September would be a bumpy ride for the markets. Why do we say so? From September onwards there would be implementation of the fourth phase of peak margin norms wherein clients need to have 100 per cent of the peak margin obligation available with the broker during the day and more importantly, on analysing the data for September we observe that only once has Nifty 50 managed to end the month of September in green since 2015.
Hence, be watchful in September. For traders who are worried about the new peak margin rule, we have a solution to offer: you may opt for hedge strategies which will enable you to avail margin benefits. For example, if you want to sell a 16,700 strike call option of Nifty September series, since it is a naked position, it will expose you to potentially unlimited risk and of course on top of it the margin requirement would keep you in a tricky position. However, if you opt to simultaneously buy at the 16,400 call option along with selling a 16,700 call option, it will virtually reduce your total margin requirement as well as limit the risk. Hence, play smartly and wisely while trading.
