BOUNCE MAY NOT BE SUSTAINABLE

  • The sharp bounce in the midst of volatility on Tuesday was largely an outcome of LIC giving an assurance of support to IL&FS. SBI too chipped in with support assurance to the bond markets. But larger market risks remain.
  • The real threat could be from rising oil prices. Crude oil crossed the $82/bbl mark and now seems to be on target to touch the level of $100/bbl as many oil analysts do expect. That could be bad news for the fisc.
  • FIIs were net sellers to the tune of Rs.(-1232) crores while DFIs bought Rs.2284 crore on Tuesday. There have been heavy redemptions on Indian equity funds so it remains to be seen if domestic buying can really last.
  • While Asia was largely mixed, US and the European markets showed signs of strength on Tuesday. SGX Nifty is in positive territory after settling about the 11,000 mark yesterday but underlying risks remain in the market.
  • While the caution over financials remains, the bigger worry now would be downstream oil companies like BPCL and HPCL. With Brent crude at $82/bbl, the government may be forced to push some subsidy to downstream oil.
  • One can look at IT stocks like Tech Mahindra and Wipro for temporary respite in these markets. Both the stock are likely to give about 10-15% upsides from current levels and one can look at this sector for safe haven investing.
  • It may be time to start picking quality FMCG stocks like Hindustan Unilever and Britannia at current levels for 10-15% upsides as they are likely to be the least vulnerable. Marico could also benefit from a 35% fall in copra prices.
  • Oil prices could be the big overhang for the Indian markets and any further rise above $82/bbl could see further deterioration in financials.

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