Table of Contents
Navy Ramavat of Indira Securities
Navy Vijay Ramavat, the Managing Director at Indira Securities, is optimistic about the recent rebound in the market over the past three sessions.
Ramavat believes that the market has factored in various concerns such as inflation, rate hikes, and the Adani Group issue, paving the way for a sustainable recovery.
During an interview with Moneycontrol at the Trader’s Mela event held between March 4 and 5, Ramavat shared his opinion that in the near term, the Nifty may test 17,800-18,000 in the next two weeks. He further stated that he believes the market is headed upwards for the slightly longer term, indicating his positive outlook for the market.
The event was organized by Moneycontrol Pro in partnership with Options Bazaar and Pasi Technologies. Trader’s Mela is an event management arm of Options Bazaar that enables interaction between professional and prospective traders.
In terms of stock-picking, he advises investors to seek out small and mid-cap stocks that have held up well during the recent market correction or large-cap stocks that have significantly corrected in recent times.
Ramavat also talked about the valuations for domestic equities, which was a significant factor that prompted foreign institutional investors to shift their allocations to China. He highlighted that valuations have now come down, indicating potential opportunities for investors.
Top sectoral plays
Ramavat is bullish on several sectors including capital goods, railways, PSU banks, and information technology.
He believes that the government’s push towards capital expenditure has unlocked growth potential for railways and capital goods sectors, making them a long-term growth story.
As for public-sector banks, Ramavat sees their cheaper prices as compared to large-cap peers, strong credit growth, and the absence of any speculation of capitalisation of the sector as factors supporting his view.
For the IT space, he believes a strong base formation for the sector is under process. “The worst is over for the IT sector and there is less likelihood of downside hereon making it an opportunity to enter at the current juncture,” he said.
Ramavat is more bullish on small and mid-cap constituents like Persistent Systems and KPIT Technologies within the IT space. Despite that, he advises investors to limit their exposure to information technology stocks to 15-20 percent of their overall portfolio.
Nifty may test 17,800-18,000 in the next two weeks
Last few sessions, the Nifty saw a break above critical resistance of 17800-18000 levels but has since retraced some of its gains. Nonetheless, its momentum readings on the charts remain in ‘buy mode’ and it is expected to move higher provided bulls maintain control above 17,800 levels.
According to Navy Ramavat of Indira Securities, the benchmark Nifty may test 17,800-18,000 within two weeks, further strengthening the long-term bullish scenario.
According to him, the index has already breached its 20-DMA and 50-DMA (located at 18,500 and 18,185 respectively), suggesting it could now test its 100-DMA at 17,840 level which coincides with its 20-WMA; technical indicators suggest strong support may exist at this level.
Today, the 200-day Exponential Moving Average (EMA) proved a reliable support. This will assist in maintaining the upward movement, which is likely to continue if the index stays above both its 20-DMA and 50-DMA levels.
On the Nifty bank indices, profit taking and fresh short positions have been observed during the trading session. Although they have closed above their previous major support level of 43,000, Chavan believes they cannot yet move past 36,700-37,000 levels due to continued pressure in the banking sector.
On the other hand, metals are showing some strength after a week of consolidation. BHEL and ONGC are among the top gainers in today’s trade, with BHEL surging 4.2% to Rs 76 apiece while ONGC added another 2.4%.
Nifty Bank experienced selling pressure across the sector as some private and large banks created new short positions. This is in line with the general market trend which has seen some consolidation or brief bouts of profit booking this week.
On the derivative front, the Nifty 18000 Call has the highest Open Interest (OI) of 2.42 lakh contracts, followed by the Nifty 18,200 Call with an OI of 1.41 lakh contracts. Furthermore, trades on Friday on the Nifty 18,000 Call have seen a strong build-up of position.
Nifty has factored in inflation
After investors digested the latest inflation report, markets saw a strong bounce from their day’s lows. Traders’ oversold positions propelled the market higher as they anticipated that CPI numbers would come in slightly higher than expected, giving them the opportunity to cover their short positions.
History suggests that high levels of inflation are generally linked to value outperformance. But if the Federal Reserve sticks with its goal to control inflation and raises rates aggressively throughout this year, it could prove a detriment for many companies.
Tightening monetary policy often leads to higher bond yields and slower economic growth, since higher interest rates make it costlier for companies to raise capital.
The rising cost of capital could adversely impact margins in some companies, rendering them less competitive in the marketplace.
Indian companies must maintain high profitability levels in order to stay ahead of their competitors. To do this, they need to boost their operating margins through improved productivity and reduced overhead expenses.
Furthermore, high wage inflation in the US may adversely affect manufacturing companies as they must pay more wages to employees for their services. Ultimately, this could reduce margins and result in a general decrease in earnings.
Another factor which could negatively impact company profits is higher oil prices, which analysts forecast to rise. India is a net importer of crude oil, so any rise in fuel costs would have an adverse effect on the country’s economy.
Inflation has been a key source of market volatility, particularly since the start of this year. As investors seek signs that inflation may be slowing, they may be looking for signs that prices may begin to stabilize.
Markets must understand the potential repercussions of rising inflation, as if rates continue to climb it will create a domino effect that ripples throughout other sectors of the economy and lead to further weakness on the stock market.
Inflation in the US is expected to remain high, and the Fed will keep raising rates as it attempts to contain it. While this should benefit growth and profitability in the long term, it could prove a risky period for stocks.
Nifty has factored in rate hikes
Nifty was trading higher after the US Federal Reserve increased its key lending rate by 75 basis points to curb high inflation. In a statement, they indicated they intended to gradually raise rates and showed less hawkishness than previously.
Recently, the Indian equity market appeared to be on the cusp of a correction as central banks around the world aggressively raised interest rates to combat rising inflation. This contrasted sharply with last year when stocks surged on an overexuberant sentiment that proved short lived.
However, with central banks announcing more rate hikes, the market is being pulled back sharply. Both the Sensex and Nifty lost over 1% on Friday as investors were caught off guard by an unexpectedly hotter-than-expected jump in US inflation data, fueling expectations of further monetary tightening by the Fed.
Analysts believe the market has already priced in a 50-bps hike from the Fed, and will stabilize once it stops raising rates. Furthermore, foreign portfolio investors are likely to start investing again once the US economy stabilizes and the Federal Reserve stops raising interest rates, according to Navy Ramavat of Indira Securities.
According to him, the Nifty may test 17,800-18,000 in the next two weeks. If it sustains above 18,350, the index could rally further towards its lifetime high of 18600; however, if it falls back below 17,800-18100 levels, traders anticipate further declines to 17800/600-500/400 levels and lower in coming days.
In addition to US inflation, domestic prices are also rising. The retail inflation rate in January increased from 5.72 percent in December to 5.9 percent, though this number still far lower than the 7.4 percent spike experienced between October and November 2018.
Though the US central bank has increased its benchmark interest rate by 25 basis points (bps) this year, India’s Reserve Bank has kept their policy stance dovish. This is because of the adverse impact that pandemic-related supply disruptions have had on economic growth. Although India’s economy is more resilient than that of the US, geopolitical tensions and supply chain disruptions still pose some downside risks for the country.
Nifty has factored in Adani Group issue
Navy Ramavat of Indira Securities predicts Nifty may test 17,800-18,000 within two weeks due to the Adani Group issue, and anticipates a sustained rebound for the benchmark index by 2023.
Nifty has been a key benchmark for Indian stock markets and outperformed global indices during the first decade of this century, recording annual average returns of about 10 per cent versus 1.8-6.7 per cent for S&P 500, DJIA, Euro Stoxx and NIKKEI.
This year, the Nifty has defied a plunge in Adani group stocks due to Hindenburg Research’s damning allegations against Gautam Adani-led firm. It has gained 3.8% over the past three trading sessions, reversing an earlier 15% decline.
After the report, wealth managers have started encouraging their clients to divest themselves of any exposures to funds linked to indices which include or will add Adani group stocks, potentially further exacerbating the selloff in shares of the conglomerate.
Given the sharp decline in Adani group stocks, global index provider MSCI has reduced its free float weightage to some of them. Furthermore, it is considering whether Adani group stocks should be included in certain other indices.
On March 31st, the NSE delisted four Adani group stocks from its Nifty Alpha 50 index. These removals included Adani Enterprises, Adani Green Energy, Adani Transmission and Adani Total Gas.
Though it is too soon to tell whether this will halt Nifty’s positive divergence from global indices this year, the market has yet to show any signs of panic. Indeed, so far in 2023 the Nifty is up 2 percent while global indices have lost 2.4% during that same period.
On Tuesday, global indices ended sharply lower after Federal Reserve Chair Jerome Powell informed Congress that the central bank may need to raise interest rates more than anticipated in an effort to curb persistently high inflation. The US S&P 500 fell 1.53 percent while the Nasdaq Composite declined 1.25 percent.
Due to the market decline, some mutual fund managers have reduced their holdings of Adani group stocks. Their valuations were too high for them to justify making bets to investors, so now they will look for other stocks with growing momentum that can deliver higher returns to shareholders.