Mid-Week Analysis

Fear Beneath the Surface

Watch Markets from Side-lines, Wait for the Right Direction

Fear Beneath the Surface
Fear Beneath the Surface
Gaurav Bhagat - 19 August 2021

Welcome back, I hope you all had a good week in the markets and otherwise too. Never a dull moment in the markets nowadays and there is always something to cheer or jeer, depending on what your holdings look like.

A quick recap would show that the Nifty is up about 1.75 per cent in the last 5 days, the bank Nifty gave up about 0.7 per cent, my favourite pharma index gave up about 1.5 per cent. The IT index has done brilliantly gaining over 5.6 per cent and liquor stocks gave us something to raise a toast to on Wednesday rising between 8 to 11 per cent in a single day. Obviously celebrating the lifting of more lockdown restrictions and hoping that people return to bars and celebrating.

Gold after its flash drop made back everything it had lost and has bounced in the last 5 sessions; oil has dropped about 5 per cent and the Dow Jones ended marginally lower as well.

A few other interesting developments in yesterday’s weekly expiry, FII’s and DII’s were both sellers, and keeping that in mind the market should have fared a little worse than it did but the retail investors of course are doing their bit in keeping things propped up too. Just hope that we’re not the ones left holding the bag if the institutions keep selling. I’ve been hearing from some of my friends who are option buyers, that the last week has been quite brutal for them. It’s something I never do, so can’t comment, whenever I do trade-in options, I’m always writing (selling) them.

Further to what I wrote in my article last week, I do also hear that demand for long term protection in global markets has started going up, a lot of the big money is now starting to take defensive positions and hedging as far out as one to three years on the indices. This does make sense, after all in some of those markets, the delta variant of Covid is making a comeback and despite that markets keep on hitting new highs every week. Again, this is something you need to talk to your financial planners about and take their advice. As a market commentator, I just give you my view and what I’m doing in a personal capacity.

A lot of direction for the global markets will come from US monetary policy guidance, while there will be some indication of what to expect on Wednesday night, a bigger meeting is happening in the coming week and is called the Jackson Hole symposium.

The Jackson Hole Economic Symposium is an annual symposium, sponsored by the Federal Reserve Bank of Kansas City since 1978, and held in Jackson Hole, Wyoming. Every year, the symposium focuses on an important economic issue that faces world economies. Participants include prominent central bankers and policymakers from around the world.

The symposium proceedings are closely followed by market participants, as unexpected remarks emanating from the heavyweights at the symposium have the potential to affect global stock and currency markets. So, watch out for that one, this will be held between the 26 and 28 August and will be a major driver of the markets leading up to and post that meeting.

In India, the unlock story seems to be finding some favour, and will be interesting to see if the interest in alcohol, entertainment, and hospitality stocks continues. The vehicle scrappage policy was an interesting announcement but has failed to enthuse the auto sector and some of the heavyweights continue to drift lower, especially in the commercial vehicle space. Let’s keep an eye on that as well and with India throwing its hat in the ring to counter the chip shortage, I feel that is a positive development for the medium to long term.

My plan for the week ahead is to stay mostly on the side-lines, I’m keeping my powder dry for re-entry when I have more clarity of direction in the broader markets and US monetary policy. I’m tempted to pick some very beaten-down pharmaceutical stocks and also make a bet on infrastructure and unlock plays. Thursday is a holiday and there are only five trading sessions left for the 26th August monthly expiry. There has been a lot of put writing in the Nifty between 16,500 and 16,700 in the last two days and my opinion, if there is a selloff in the Nifty it will lead to some panic coming towards settlement day. Tread with caution in the week ahead is my strategy. Better to be safe than sorry. You all have a great week ahead, stay safe, stay well and stay financially healthy. Will be back with you in exactly one week.

The author is Founder, Gaurav Bhagat Academy

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.


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