Markets to track what RBI will do next

Digesting the disappointing GDP data and buoyed by good Q4 earnings and timely onset of monsoon, markets extended gains for the fourth straight week.

Benchmark indices the Sensex and the Nifty closed 245 points and 58 points higher at 31,273 and 9,653 respectively. However, heightened activity in the mid- and the small-cap counters helped the BSE mid-cap and small-cap indices gain 1.9 per cent and 1.5 per cent.

Outperformance would continue for some more time say punters.

It is pertinent to recall that RBI has held its benchmark repo rate at a six-year low of 6.25 per cent and raised its reverse repo rate by 25 basis points to 6 per cent in the last meeting saying there are upside risks to the inflation outlook amid an uncertain global economic environment.

With GST on the verge of implementation and visible impact of demonetisation reflected in GDP numbers, RBI may adopt status quo for present. Observers feel it may mostly consider rate cut in August policy. Markets would react to the decisions of GST Council and with the stage almost set for rollout of GST on July 1.

Near-term trend will be dictated by the RBI Policy meeting, progress of monsoon, the dollar-rupee exchange rate, investment pattern of FIIs, international crude oil prices and UK elections outcome.

Following Trump’s decision to withdraw from the Paris climate agreement, global market players fear unexpected “shocks” in coming days.

For the week ahead, chartists predict trading range of 30,800-31,700 and 9,500-9,775 for the indices. Key supports for the indices are at 31,000 & 30,750 and 9,575 & 9,500.

STOCK SCAN

■ Redington (India) operates in the information technology product distribution business, supply chain solutions and after sales services of information technology products. Starting as a single product distributor it has now evolved into an integrated supply chain solutions provider with capabilities across distribution, logistics and after sales services. It is the second largest distributor of IT and mobility products in India and the largest in the West Asia and Africa regions. Going forward, the company plans to include Managed Services offerings on this platform in order to offer a complete range of cloud products and services to end customers through the company’s partner network. Buy on declines for target price of `275.

■ Menon Bearings is engaged in the manufacturing of auto components. The company’s products include bi-metal engine bearings; bushes and thrust washers for light and heavy automobile engines; two wheeler engines, and compressors for refrigerators, air conditioners and others. The company exports its products to the US, the UK, Italy, France, China, Mexico and Brazil, among others. Buy for medium term target price of `135.

■ Bayer CropScience is engaged in the manufacturing of insecticides, rodenticides, fungicides and herbicides. The company operates through Agri Care segment. The firm offers crop solutions. The firm offers various pest management solutions, such as professional pest management for household/structural pests and vector management for pests that pose a threat to public health. The firm enjoys a unique position in the market because of its capability to offer new innovative products, tech, processes, services and business models. Sources indicate stock split in near future. Buy on declines for target price of `8500.

FUTURES & OPTIONS

Mirroring the activity in cash segment, derivative segment witnessed brisk stock specific action.

Option activity witnessed the highest concentration of call options at 9,700 strike and put options at 9400 strike.

Sentiment indicators suggest like put/call ratio, open interest, implied volatility and VIX suggest consolidation at current levels with upward bias.

It is interesting to observe that since the year 2013, the indices have not gained for more than four to five weeks in a row. With four straight weeks of gains already in place, the benchmark indices can enter a consolidation phase.

Stock specific moves are predicted. Renewed buying interest was seen in Autos and FMCG and sectors.

Strong sales momentum moved the auto sector on to fast track. Stay invested for further gains and add on declines of Hero Motocorp, M&M and TVS Motors. Piggybacking on auto sales numbers were tyre companies Apollo and Ceat.

Ahead of GST fixation on different products FMCG counters are witnessed good buying. HUL, Marico and Pidilite Inds look good for further gains.

Debt problems of Reliance Communications is only one example of several other business houses say punters. Track developments in high debt companies. Schemes like S4 or innovative restructuring of debt may give fillip to some stocks. Punters tip GMR Infra and JP Associates.

Selective buying was seen in capital goods sector. Metal stocks attracted profit booking. Short term weakness indicated.

Stocks looking good are Apollo Tyres, Adani Ports, Ceat, Grasim, GSFC, GMR Infra, Escorts, HCC, L&T, Muthoot Finance, M&M, Power Grid and Pidilite Inds.