Closing Bell: Nifty ends above 11,650, Sensex up 143 pts; banks outperform

Taking Stock: Market breaks 3-day losing streak; banks outperform

The top gainers on the Nifty included IndusInd Bank, ICICI Bank, Axis Bank, HDFC and Bharti Airtel, while top losers were Reliance Industries, Divis Labs, Eicher Motors, HCL Tech and BPCL.... Read More

Markets traded volatility in a range amidst mixed cues and finally ended almost unchanged. Initially, the reaction on two of the index heavyweights results, Reliance and ICICI Bank, led to volatile swings in the market. Reliance Industries witnessed sharp profit taking and slipped nearly 9% however strong results from ICICI Bank led to healthy buying interest in overall banking stocks. Meanwhile, indications were mixed from the global front. Amid all, the Nifty index managed to end on a flat note at 11,669 levels. The broader market performance was mixed as midcap index ended higher whereas smallcap index ended lower by 0.8%. On the sector front, a mixed trend was witnessed as banking, telecom and realty were the top gainers whereas oil & gas, IT and auto ended lower.

The buoyancy in the banking space saved the day for bulls however it was not an easy for the traders. Global cues viz. upcoming US elections and updates on second wave of infections in the US and Europe will remain on participants’ radar. Besides, earnings and macroeconomic data on domestic front would be actively tracked. We suggest focusing more on position management and limiting leveraged trades in such a market scenario as volatility is here to stay.

While the Indian economy has been on a gradual recovery path since Q1FY21, IHS Markit Manufacturing PMI for October 2020 provides some hope that the speed of such recovery is set to accelerate over the current quarter. The PMI moved up to 58.9 as against 56.8 in September and is reportedly the highest reading in over a decade.

With the steady unlocking of the economic activities and importantly, the consistent decline in the fresh Covid cases and the fatalities thereof, the supply constraints appear to be easing out and also providing confidence to the manufacturers to build fresh inventories. This has the potential to deliver a positive growth in IIP and possibly stop the contraction in GDP from Q3 itself. The key to the sustainability of such improved demand sentiment would be however, the retail sales momentum during the current festive season.

One more indecisive day for the Nifty 50, however, Bank Nifty did a great job. The Bank Nifty closed 4 percent higher while Nifty 50 closed at an unchanged level. Nifty was down mainly due to steep weakness in Reliance Industries. At one point of time, Reliance was down by more than 10 percent and it's the biggest drop on intraday basis after 15th July 2020.

Financials did a strong comeback and managed to recoup the losses on Indices due to a substantial fall in Reliance Industries. As we discussed, Nifty remained between the range of 11530 and 11750. It has formed an indecisive candlestick formation on a daily chart. Be stock specific for the time being. The focus should be on financials as technically, the Bank Nifty is ready to hit the level of 25500 shortly.

The weak opening reflected the rough waters market the entered last week. However, some recovery was seen as investors showed interest in banking stocks as major players announced Q2 results, beating the street estimates with positive outlook. Additionally, the banking stocks are attempting to price, in expectation of the positive SC verdict on moratorium. The Indian market is expected to be volatile, amidst mixed global sentiments due to increasing covid cases, US election and delayed stimulus.

Bank Nifty has been outperforming Nifty since the start of last month. Today's surge in Bank Nifty has lifted the Bank Nifty to Nifty ratio to a 6-month high of 2.15, a level that has been approached multiple times over the last six months. A sustainability above this strong hurdle could pave the way for further outperformance by banking stocks.

Looking forward, there are some crucial events lined up between today and the next few days, including the resumption of the Supreme Court hearing on bank moratorium, US Presidential election, and Bihar election. Given the magnitude of these events, volatility can be expected to pick up in the days ahead. Hence, it is prudent to be on the defensive over the next few days and trade with tight stop losses.

Ahead of the US elections, we witnessed a highly volatile trading session today with Reliance giving way. However indices managed to end in the green led by Financials which was indeed a treat to watch. Few high profile Realty names were the stars in the broader market today.

11700-11750 should act as a stiff resistance for the Nifty. If we can get past that, there is a chance we resume the upward trajectory of the market and nullify the downside target of 11400. As long as we are below 11700, the markets are in bearish terrain. On the upside, if we get past 11750 on a closing basis, we cannot rule out the Nifty reclaiming the level of 12000 and above.

Benchmark indices broke the 3-day losing streak and ended higher with Nifty above 11650.

At close, the Sensex was up 143.51 points or 0.36% at 39,757.58, and the Nifty was up 26.80 points or 0.23% at 11,669.20. About 1080 shares have advanced, 1535 shares declined, and 148 shares are unchanged.

IndusInd Bank, ICICI Bank, Axis Bank, HDFC and Bharti Airtel were among major gainers on the Nifty, while losers included Reliance Industries, Divis Labs, Eicher Motors, HCL Tech and BPCL.

On the sectoral front, except bank and FMCG other indices ended in the red.

Crude oil prices have declined nearly 14% in October 2020, from the previous month, due to increasing oil production in OPEC and Non-OPEC producers. Loss of demand due to the coronavirus pandemic has also affected the prices.

The Covid pandemic in the US and Europe is likely to keep people movement limited, and curb demand for auto and aviation fuel.Ramped-up crude output in Libya is also the key reason behind the negative sentiment in crude oil. Libya's crude production has risen to 690,000 bpd, from less than 100,000 bpd, in early September.

WTI crude oil prices are likely to find stiff resistance near $38.7-$41.47 per barrel, while key support levels are found near $33.87 and $31.95 per barrel.

The world’s oldest democracy goes into election mode this week, an election that has two candidates with vastly differing agendas pitted against each other. As far as the US markets are concerned, they are likely to continue their volatility until election results are out of the way. A Biden victory could bode well for sectors such as renewable energy, cannabis and education whereas a Trump victory will help sectors such as oil, defense and infrastructure perform well.

Irrespective, one should not change their asset allocation to the US markets based on the election – it’s a short-term impact. As far as the impact on Indian markets is concerned, irrespective of whether Trump or Biden win, India stands to benefit from improved relations with the US as both countries attempt to neutralize the rising power of China.

We expect FY20-23E sales, PAT CAGR at 8.2%, 9.0%, respectively. Company provides an auxiliary play on domestic tractor industry (rural economy) as well as M&M. Its strong balacesheet, ~70%+ dividend payout & healthy capital efficiency merit continued premium valuations, in our view. We value company at Rs 1,710 i.e. 24x P/E on FY22E & FY23E average EPS (| 71.2) & retain buy.

Company's Q2 net profit was at Rs 227.2 crore versus Rs 101.5 crore and revenue was up 24% at Rs 1,654 crore versus Rs 1,333.7 crore, reported CNBC-TV18.

Earnings before interest, tax, depreciation and amortization (EBITDA) was up at Rs 298 crore and margin was at 18% versus 9.3%.