It’s Time to Stay Alert at Every Move in Markets This Week

Welcome back. I hope you all had a good week in the markets and otherwise too. What a start to the week, for those who follow the index, may have thought the action was a mild tremor, after all the Nifty moved in bands of 0.5-1 per cent before closing slightly higher, but for those who had exposure to the small-caps and mid-caps, for them, it would have felt like a major earthquake.

The swings were crazy and some stocks witnessed swings of 10-20 per cent. Fortunately, the actions that I had taken in the last two weeks on my portfolio paid off. Two weeks ago, I had mentioned that investors should start connecting with their relationship managers and financial planners and explore how to hedge your portfolio using derivatives. 

This was something like a saving grace in the last two sessions. This is also what the smart money is doing right now. I saw a quote from Nikhil Kamath, Zerodha’s founder, saying the same thing. One of his biggest funds while bullish in the long term is defensive in the short term and they are doing it by using derivatives. Again, just reiterating, get professional advice on this if you’re not sure how hedging works.

The other thing I’d mentioned in last week’s article was that most of my deployment is in large-cap stocks at the moment, that turned out to be the right choice as well. My experience shows that when things get volatile and uncertain, there is always a flight to quality and that was proved yet again in the first three days of this week.

The big boys corrected slightly and pulled back all their losses while many of the smaller stocks struggled with double-digit losses. I don’t see this changing in the week ahead, yes, there may be a slight pull back but my belief is that the market will inch up and many smaller stocks will move the other way.

Global cues remain neutral, a big infrastructure bill was passed in the US and that should keep the Dow Jones going for some time, the Nasdaq seems like it’s peaking for now and will be interesting to see where that goes from here. Oil seems to be softening which is great news for India, gold had a flash crash over the weekend but has subsequently inched back up. It did cause some flutters in some of the commodity stocks that I hold as well but hopefully just a temporary aberration.

It’s an unpredictable situation right now for sure, even the slightest of news, good or bad can move things so quickly that if you’re on the wrong side you’re going to get nervous. If the market does pull back and head to 16,400, I’m actually lightening a bit of my holdings and moving it back into cash. 

At this point, I think capital preservation is most important and be happy to jump back in if a mild correction does happen. The BSE small-cap index between its high on August 4 and the low on August 11, gave up 8 per cent, some stocks moved twice that amount. Bit too extreme for me, I’m watching critical support levels closely.

I think 16,100-16,150 is a crucial Nifty support level and if that breaks then there is support at 15,900 as well.  Don’t think we are going any lower than that for now. Thursday is weekly expiry day and will be interesting to see what happens. I did have a glance at the Nifty options chain and it shows a lot of addition in open interest on 16,500 on Wednesday. So that would be an indicator that a lot of money is betting on 16,500 before the August 26 monthly expiry. Again, these things change quickly, so stay alert.  

My personal plan for the week ahead, is to cash out in some stocks where I’ve had a great run as we move towards 16,500, I do also have a list of favourites that I will continue to add to my long-term portfolio, given that the price is right. The auto sector is starting to show signs of value and if that corrects some more then I’m adding two-wheeler stocks to my portfolio for sure.

Otherwise, I’m actually not actively adding anything this week, it’s a wait-and-watch week for me. Yes, sometimes it’s OK to sit out and watch the action from the sidelines too. Wasn’t it WH Davies who once wrote in his poem, Leisure, “a poor life this if, full of care, we have no time to stand and stare”.

The author is Founder, Gaurav Bhagat Academy

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