Watch out for the VIX!
The last one week was an action-packed period for the markets right from the announcement of the four-year moratorium on payment of adjusted gross revenues (AGR) for the telecom sector to US Federal Reserve’s outcome wherein Chair Jerome Powell surprised by signalling that the tapering announcement could come in November. This is undoubtedly a hawkish shift, not to forget China’s Evergrande crisis. But despite all this, what we have in sight is a big risk on rally in the Indian equities’ market as Indian benchmark indices scaled to fresh all-time highs on Thursday.
This indicates the kind of bull market that we are in, which climbs walls of worries, while the good part about the rally witnessed post the sharp retreat from the higher levels is that it is broad-based and many of the non-performing large-cap stocks were seen joining the party! The big, surprising fact, which would be music to the ears of value investors, is that the value stock which became the meme stock on D-Street – FMCG major ITC – logged a fresh 52-week high on Tuesday. Interestingly, it has been outperforming not only the benchmark indices but also the broader market indices.
The stock has gained nearly 5 per cent on a WTD basis and on a MTD basis the stock has gained nearly 15 per cent. Time and again we have reiterated that one of the striking points of the current bull phase has been the sector or stock rotation where we see the passing of the torch of leadership from one sector to another or from one stock to another. Coming to the top three performing sectors on a WTD basis, the top position is held by Nifty Realty which is then followed by Nifty Media and Nifty IT. Furthermore, nearly 90 per cent of the constituents of Nifty Realty and Nifty Media have delivered positive returns, while 80 per cent of the constituents of Nifty IT delivered positive returns.
The Nifty Realty index has gained over 57 per cent on YTD basis and it is one of the best performing sectoral indices on YTD basis. With this it has reclaimed levels which were seen in the latter part of the calendar year 2010. What is the key factor that has triggered such a rally in real estate stocks? First of all, it is the the lower interest rate and secondly, it is due to the state government initiatives such as reduction of stamp duty with Karnataka recently announcing that stamp duty will be reduced to 3 per cent from 5 per cent but it would be applicable to flats priced between Rs 35-45 lakhs.
In the Nifty Media sector, there are no prizes for guessing since the top performing stock was Zee Entertainment Enterprises Limited (ZEEL). ZEEL has gained more than 28 per cent in the last one week. The main trigger for the stock was the announcement of an exclusive, non-binding term sheet merger plan between ZEEL and Sony Pictures Networks India (SPNI). The merged entity will have a bouquet of 75 channels, two OTT platforms and around 25 per cent-plus TV viewership market share. However, the companies will have 90 days for due diligence with expected completion timeline of six to eight months post statutory approvals.
One of the key factors that market participants should keep a close watch on is the India VIX which recently touched a high mark of 18. Interestingly, the India VIX currently for the 16-week period is trading below the 18 mark and a similar sort of pattern was witnessed just before the fall driven by the pandemic when India VIX traded below the 18 mark for almost 18 weeks. Hence, India VIX sustaining above the 18 mark would signal signs of caution in the market. Until then enjoy the ride. Nifty will now aim for the magical landmark of 18,000!
