Stock-Specific Action Holds Sway
The Indian equity market has been directionless for the last couple of weeks. It’s been more of a bull versus bear fight, which is quite intense at the moment as while the bull dominates on one day, the bear has the upper hand on the next! On Thursday, a similar kind of thing happened. The market corrected by 1 per cent on Wednesday and the very next day, the bull bounced back to reverse its previous day’s losses. The best description of docile trading as seen lately may be Mark Newton’s characterisation of 'No Man’s Land'. Eventually, it has left everyone scratching their heads about the turn the equity market may make.
It is therefore a challenging market that does not breed conviction. However, being stock-specific continues to be the name of the game and that is what we had advocated in our last editorial. The talk of the town was the Adani Group stocks, all of which logged a positive return on weekto- date (WTD) basis. The top gainers from this group on WTD basis have been Adani Power and Adani Wilmar, both registering gains of over 9 per cent. There are many investors who have missed out on the rally in the Adani Group stocks while those holding it since a long time have been unsure of whether the time is ripe to take profits off the table.
We will begin by saying that it’s truly impressive in terms of what the Group has achieved so far, as reflected through its growth curve and diversification into different business opportunities while expanding the scale of its operations. That said, given the stellar run we have seen in Adani Group stocks, it might be best for new investors to look at it from a distance for now and wait for some healthy correction. This is because when stocks and sectors have this kind of swift movement, there is also a correction that could be around the corner. From a technical perspective, the majority of the stocks from this Group are quite stretched in terms of their 20-DMA.
Hence, when these stocks revert to their mean, they form a strong base around the 20-DMA, which is when the risk-reward would be quite favourable for swing traders. For those who have been holding the stocks for long, partial profit booking is recommended at the current juncture. Secondly, there were stocks which benefitted by the Indonesian ban on exports of palm oil to India. The first such beneficiary is Ruchi Soya, which is the largest manufacturer of edible oil in the country. Its stock has gained over 15 per cent on WTD basis.
The second beneficiary is Godrej Agrovet whose stock has gained over 15 per cent on WTD basis. The recent action on D-Street is clearly indicating that market participants are ignoring high momentum stocks since the index is literally doing nothing. Instead, they are focusing on specific themes which are benefitting from the government’s policy of duty or drawbacks on the import and export of the specific commodity. Meanwhile, as regards the earnings, after a subdued phase there was a positive surprise from the FMCG major Hindustan Unilever. The earnings reported by the company were above the street’s estimate with profit rising 8.6 per cent YoY to Rs 2,327 crore on double-digit growth in top-line and operating income even though the margin contracted by 30 bps YoY.
However, the management expects the margins to remain under stress in the near term amid volatile commodity prices and tepid rural demand. Technically, the stock will be back into reckoning on any close above its biggest hurdles at Rs 2,250. Definitely, an above normal monsoon will be welcome. Apart from this major announcement, the one which garnered a lot of traction was about the mega LIC IPO which is finally ready to see the light of the day. We believe it would be a milestone event for the Indian capital markets, which is expected to boost retail participation. For the coming week, we would like to reiterate that stock-specific action is likely to continue and active market participants should keep a close watch on stocks exhibiting strong relative strength.
