After remaining weak for the better part of the week ended on the back of higher inflation concerns and uncertain global cues, the markets, enthused by exit poll results of Gujarat assembly elections, rallied on Friday to close on an optimistic note. The Sensex closed 216.27 points higher at 33,462.97 while the Nifty ended 81.20 points higher at 10,333.30.
It is pertinent to observe that FIIs have been net sellers of around Rs 5,000 crore for the month of December so far. In contrast, DIIs bought shares of around Rs 4,591.57 crore. With the end of Q2 results season, focus will now shift to Parliament. FRDI Bill is expected to be tabled in the upcoming session for creating a framework for resolving bankruptcy in banks, insurance companies and other financial establishments. The Bill proposes ‘bail-in’ as one of the methods to resolution, where the banks issue securities in lieu of the money deposited. In the past, bail-in efforts had largely worked against depositors. In Cyprus, depositors lost almost 50 per cent of their savings when a bail-in was implemented.
The biggest worry might be the return of inflation, say observers. There is little evidence of it in the market right now as pricing pressures remain mild but it could change dramatically if oil prices, currently hovering just under $60 a barrel, climb further. A further spike in crude prices could impact fiscal deficit.
Near-term trend will be dictated by outcome of Gujarat elections, crude prices, FII investment pattern and cues on the global front with respect to North Korea, Brexit and the tax issue in the US.
Stock Scan
Volume and price action was seen in Vimta Labs, Ortin Labs, Pennar Industries and Zen Technologies during the last fortnight. Vimta Labs is engaged in the business of contract research and testing services. The company provides services of testing and contract research in the fields of clinical and pre-clinical studies, clinical reference, analytical testing, advanced molecular biology and environmental studies. It supports regulatory authorities in mandatory certification of food and agricultural products exported from India. Buy on declines for target price of '250.
Ortin Labs is engaged in manufacturing and trading of pharmaceuticals, drugs and intermediates. Its API intermediates include Anti retro viral, Anti Diabetics, Ciprofloxacin, Tramadol and Efavarenz. Despite not too enthusiastic results, the stock is witnessing good volumes on expectation of some interesting development. Buy for target price of Rs 40.
Pennar Industries is a holding company. The Company is engaged in the manufacture of steel products, including Cold Rolled Steel Strips (CRSS) and Cold Formed Metal Profiles. Its business divisions include Steel products, Systems and projects, Tubes and Industrial components. Revival in capital goods sector spells good times for the company. Buy for target price of Rs 125.
Zen Technologies is engaged in the design, development and manufacture of training simulators. The company offers its products to police and paramilitary forces, armed forces, security forces, government departments, such as transport, mining, infrastructure and civilian markets. Buy on declines for target price of Rs 200 in medium term.
Futures & Options
Mirroring the course of the cash market, derivative segment saw spurt in volumes during the later part of the week ended. The pullback was mainly due to short covering, as most of the exit polls predicted a BJP victory in the state elections. Sharp recovery in Bank Nifty from lower levels accompanied by buying in pharma, auto and metal sector was seen.
Highest OI for Nifty is placed at 10,500-strike call option and 10,000-strike put option, while for Bank Nifty the highest OI is placed at 26,000-strike call option and 25,000-strike put option. After a long time, select pharma stocks witnessed good buying interest. Dr Reddy’s logged gains of over 8 per cent and Lupin was up by 5 per cent.
Market circles indicate a strong rally in the sector. Stay invested and add strong momentum counters like DRL, Divi Labs and Granules on declines.
The Supreme Court order on allowing usage of petcoke in the manufacture of cement gave fillip to cement stocks. Buy ACC and Ultratech for unexpected gains. Renewed buying interest was also seen in the metal space after encouraging data from China. China's industrial output expanded at faster than expected pace in November as growth in top industrial metals consumer remains resilient.
Stay invested for further gains in Vedanta, Hindalco, Tata Steel and JSW Steel. The Centre is likely to seek a nod from Parliament for the recap next week and it may also provide additional recap of Rs 10,000 crore through a second supplementary. Sources indicate decision on SLR status for the recap bonds. Stay overweight in the banking space.
