Pouring Water over High Hopes
Lights, camera, action! This is the cue traditionally given to a film crew by the director when they are ready to begin a new take. Many of the market participants were ready with this scenario as the Nifty was looking set to hit a new all-time high, but for D-Street it turned out to be lights, camera, but no action! As the index has witnessed listless moves with some volatility towards the end of the day, such kind of a scenario is fit mainly for option sellers. Directional players were busy looking up for stock-specific moves but then realised they were deprived of opportunities as the breadth was narrow. Mainly, it was because of the broader indices that were missing the required level of energy!
The action was largely seen in the top heavyweights of the index. For instance, HDFC Twins were right at the top amongst the best performing Nifty 50 stocks followed by IT mavericks Infosys and TCS. Interestingly, due to a strong move in the HDFC Twins, the Bank Nifty made a fresh all-time high. So, it is quite clear that market participants are moving towards quality stocks which offer good value along with margin of safety. But while the action has been missing in the secondary market, it is clearly visible in the IPO market. Bikaji Foods International and Global Health listed at a premium, continuing the good run for initial public offering so far this fiscal.
As many as 24 main board IPOs have raised Rs 46,300 crore in FY23 so far. Of these, 17 have delivered positive gains since listing, while seven are in loss. Let’s move to the west where we have seen a host of data flow with solid retail sales reported by the US Commerce Department. There is a sign of economic strength that seems to be helping the US Dollar index find some demand. Strong October sales could harbinger less consumer spending later in the year. Interestingly, Target Corporation, an American big box department store chain, warned in its earnings’ report that US shoppers are pulling back, slamming the retailer’s profit and dimming its outlook.
For the current quarter, the company is projecting a dropin comparable sales, the first decline in five years, and predicts operating profit will shrink to about 3 per cent of revenue – roughly half the previous forecast. Furthermore, it also unveiled a plan to save as much as USD 3 billion by streamlining operations but stopped short of mass job cuts. Some other big headwinds which would create a sense of indecisiveness amongst the market participants include San Francisco Federal Reserve President Mary Daly’s statement that the Federal Reserve isn’t ready to pause rate hikes yet and that it could lift the federal funds rate by more than a full percentage point from here.
The second issue is the possible escalation of the war between Russia and Ukraine. The White House has stated that ultimately Russia is responsible for the tragic incident in Poland. Third, it could be the muted action from FIIs in the last two trading sessions. That said, there is nothing much that can change the bullish picture in a hurry. It is only our self doubts and perhaps the fear of heights that may create issues for traders. If we avoid those, then dealing with the rising market may not really be much of a problem. The one that we may face is of a ranging action setting in again owing to lack of overall broad market participation. But nothing is ever so simple in the markets, is there?
Everyone is waiting for the broader market indices i.e. midcap and Small-Cap indices to revive but looking at the charts there I am afraid the bulls are yet to arrive to these parts of the markets. So, some patience is to be exercised here and one may even want to consider re-jigging the portfolios, exiting the non-performers and then carefully choosing those which offer higher margin of safety and earnings visibility in order to put the money back to work. All in all, a week ahead where the market may need some help to get going. Our job in the coming sessions is to see whether helping hands are held out or the market is just allowed to drift a bit.
