Market Notes 24.07.22
India, Global, Crypto, Sectors to watch, Explosive Earnings and a Special Situation.
Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor.
Market Environment.
India
As expected, markets have had a bounce. Nifty is up ~10% from the lows. What have led this rally are actually the banks. The bank nifty is up ~14% from the recent lows.
This was very much in the offing and i mentioned as much in the last several posts that financials remain the best mean reversion trade.
The improvement in fundamentals was very much in place since the last quarter, however the bad market environment kept them down. With the weight of the market off them, they took off.
ICICI bank has reported decent numbers yesterday, for the second quarter in a row. Compared to HDFC Bank and Kotak Bank, ICICI seems to be doing much better and given that its valued lower than the other two, there is a good case for re-rating. Keep an eye on this one.
The mid and small cap indices have outdone even the BankNifty - but that is because they had fallen much more in this fall.
FIIs buying has restarted across segments after a long long time. If there is no global crisis, it looks like this rally has more legs and we may make an attempt towards 18k on the Nifty.
The USD-INR touched 80 and is likely to retreat from there. If that happens the FII flows should gain more traction. The RBI is also on record now saying that they will defend the rupee and try to reign in any large volatility.
The Fed is meeting this month end. That will be a key event. Whether they will do another 75 bps or more or less. If they do 100 bps the markets may in fact rally (after a knee jerk) as that would finally mean that the Fed is getting ahead of the curve. Let’s see.
Global
Global markets have also staged a bounce back very similar to India. It would be more apt to say that the Indian markets have bounced on the back of the global markets. The European markets are not doing as well relatively and are lagging both the US and Indian markets. This is a lot to do with the energy crisis in Europe that we discussed in the last few posts. The European economies are under severe stress. Europe has undergone one or the other crisis several times in the last decade - but they have survived each time by printing money. How things play out this time is anyone’s guess but one would need to watch Europe closely. Things are so bad that they have removed some sanctions on Russia and are looking at restarting nuclear plants for their energy independence. Many other countries are also looking at energy independence.
Long term all this means, there is likely to be an energy glut in the future much opposite of what’s happening now.
Crypto
Like other asset classes, crypto has had its own rally and in the fashion that crypto moves - large moves on either sides. ETH seems to be leading now with a 63% gain from the low, while BTC has lagged with 25% or so. It’s hard to guess how these coins will move as the variables are too many and too fluid, give or take several scams in the interim. The best way to play them right now is either to have trader’s mindset with stop-losses and targets or a buy and forget investor with appropriately defined allocations. Anyone in the middle will get fried.
Sectors in Play
One should keep an eye on the following sectors. Some of them have been in the play since the last couple of posts and are continuing their run. If the results don’t disappoint expect these sectors to be where alpha is generated. I will also mention a couple of representative names as an illustration ( they are NOT recommendations but only illustrative - you can lose money if they are bought or sold without due diligence).
Capital Goods
Siemens
ABB
Cummins
Thermax
Autos & Auto Ancillaries - the entire space is doing well - after last few years of under-performance
M&M
Maruti
TVS Motors
Timken
Chemicals
I wont name any names here as the margin profiles are hard to predict
FMCG
HUL
Nestle
Banks & other financials
ICICI Bank
SBI - if the results are decent
Logistics
Bluedart
VRL
This is where the action seems to be - and one should possibly focus here. Except Chemicals, all other sectors are coming out of a 1-2 years phase of under-performance and hence the rallies are likely to sustain.
Earnings
The earnings season has started. Most companies are reporting decent toplines but margins aren’t as good as the March Q. This is to be expected. The one’s which beat the March Q toplines and margins will be the ones to look out for.
Some of the larger names which have come out with explosive numbers are:
Avenue Supermarts
GSFC - margin sustainability is ?
Canfin Homes
There haven’t been any large no brainer surprises among the larger names yet. Most of the numbers have been good to decent nothing to complain of, but not a lot of out of the park types.
We are still in the middle of the season - hopefully we will get some explosive numbers as the earning season progresses.
Special Situation
Pratik Pota ex CEO Jubilant Foodworks/Dominos is now the head of recently demerged Eureka Forbes. Although the current valuation seems to capture a lot of goodness one needs to keep a watch for any sustained or large improvement in the earning’s profile post Pratik’s joining - who very successfully turned out Jubilant Foodworks from a bad phase.
That’s it for now.
Let me know in comments, any feedback and what else would you like to read about.
Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor.
Prabhakar, thanks for sharing your thoughts!