Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have – or don’t have – in their portfolio ~ Nassim Nicholas Taleb
One day at a time. That’s how most traders and investors are trying to navigate this trendless market. The banking crisis in US and Europe appears to be under control for now, but the general feeling in the market is that the next bad news could just be around the corner. Traders are keeping their positions to the minimum, and investors are taking their time, aware that prices are unlikely to run away anytime soon. Foreign institutional investors remain net sellers, domestic fund houses say equity inflows are thinning, and wealthy traders are steadily increasing their investments in debt instruments. This is resulting in a self-fulfilling prophecy, causing stock prices to drift lower.
F&O cues
FII net short positions in index futures have shrunk from around 85 percent to around 65 percent over the last week. In the past, such a reduction in short positions has triggered a decent rally in the Nifty. That has not been the case this time around, with the Nifty struggling to sustain above 17,000. This, veteran traders say indicates there is a steady supply of shares from local players leaking into the market.
Out of power
Power stocks seemed to be among the safest of bets in this market till now. But shares of these companies too have been under pressure over the last few days. Last week brokerage house Jefferies flagged power as a multi-year story, but also warned that 2023 could be a slow year for the sector even as stocks like NTPC, PowerGrid and JSW Energy looked attractive. Jefferies concerns: Solar Energy Corp of India (SECI) awards have slowed to just 4.6 GW in first nine months of FY23 with another 4-5 GW planned by March 2023 against the planned 15 GW. Second, State Electricity Boards are not giving demand requirements to SECI as they are uncertain about the growth outlook post the next 24-36 months. Also, game-changing distribution reform seems to be on the back-burner for now till the May 2024 elections.
Power stocks may still outperform the rest of the market, but investors should not hope for the runaway gains seen in many of the stocks last year. That’s because market has now become realistic about earnings from the renewable energy story. Besides, investors have also realized that utility companies need to be valued like utility companies, given that the heavily regulated and capital intensive nature of the business puts limits to how fast they can grow their earnings. Unless of course, power companies can exceed market expectations by a mile.
Copper can come a cropper
Copper prices have been rising of late, but fund managers are beginning to turn bearish on the metal because of macro economic concerns, writes Reuters columnist Andy Home. This is in stark contrast to the bullish views of metal trading firm Trafigura and global investment bank Goldman Sachs, who see copper making a new high this year.
“Early-year enthusiasm for copper as a proxy for China’s re-opening from stringent lockdown has succumbed to the contagious fear spreading from the banking sector to other risk asset classes. The investment community has turned net short of CME copper for the first time in five months, while funds have cut their long exposure on the London Metal Exchange (LME).” Read full story here
Wait and watch
Nomura Holdings is in no hurry to poach employees of the troubled investment bank Credit Suisse, unlike many of its rivals, reports Bloomberg. Nomura had hired many employees of Lehman Brothers after that bank went under in 2008.
“We’re not going to suddenly hire, you know, 30 people because they happen to become available out of a one-off event,” Christopher Willcox, head of Nomura’s wholesale business told Bloomberg. “Sometimes events like this look like they present you a huge opportunity, but there’s a risk when you do that. You then end up doing something quickly because it’s as a consequence of reacting to events.”
