The domestic equity market remained jittery all week with negative news on fears of escalation of the cross-border conflict and unfavourable global macros due to a dent in recent optimism on US-China relations and the breakdown of Trump-Kim Vietnam summit. A ripple effect was visible on the home front too.
Fewer derivative bets got rolled over to March series, which was lower than a three-month average for Nifty contracts. The economy seems to have slowed down as it grew at 6.6 per cent in December quarter compared with a 7.7 per cent expansion in the same period the previous year. Dalal Street had already discounted this and hence markets didn’t fall post the GDP data release. Meanwhile, IPOs have been missing for a long time.
Historically, all these indications are at or near bottoms and such pessimism makes a case to begin investing in a staggered manner. The pharma sector should rejoice after the USFDA chief in a recent interview said the generics manufactured in India are meeting US standards. The worst seems to be behind for the sector.
As much as 30 per cent of the 323 drugs tested by FDA were from India and all of them have met US market quality standards, which will instil further conviction in Indian pharma companies. With generics comprising 90 per cent of US drug market and sale of generics being the key source of income, pharmaceuticals seems to be the sector to be in. But not all stocks in this sector are good bets. Hence, investors must look out for quality companies that are undervalued at the current juncture.
Event of the Week
The Rs 67,000 crore Adani Ports has been facing the heat post its decision to acquire Adani Agro Logistics from Adani Enterprises in an all-cash transaction. The deal is expensive, as the valuation offered for Agro Logistics is 6 to 7 times higher compared with its peers in the logistics business. To add to it, there is uncertainty in the capital allocation and lack of transparency, which has left minority shareholders unhappy.
Prima facie, it seems Adani Ports is bailing out the debt-laden Adani Enterprises with this organic deal. The debt could implode if liquidity issues are not sorted out quickly.
The market is oscillating near its 200, 100 and 50 EMAs, a rare phenomenon nowadays. The slope of all three moving averages is flat at 180 degrees. This is clearly a non-trading, non-trending zone for the market, but this will eventually result in a powerful move on either side, up or down. Given the current evidence from the midcap and smallcap indices, it seems most likely that the market will move higher, but when is anybody’s guess. Trading prudence suggests being out of the market would be wiser till the time a clear trend is visible.
Expectation for the Week
The market is unlikely to turn a particular way soon, but if Indo-Pak tensions snowball into deeper confrontations, then there can be a kneejerk reaction. Volatility will remain high, as market participants are eagerly awaiting the election dates. Investors can look out for pockets of quality companies in the wider universe.
With the government’s aid, certain PSU banks are out of the PCA framework and consolidation is emerging among some players. Meanwhile, weak liquidity among the NBFCs is providing a good opportunity to the PSU banks to recapture the ground that they lost in last two years. Hence, this space must be watched closely for some long-term wealth creation opportunities. In general, investors should start buying top quality stocks at lower levels.
Nifty50 closed the week 0.67 per cent higher at 10,863.