There are several traditions, practices, and beliefs associated with the Diwali celebration. One such tradition is Muhurat Trading. It has been passionately followed by the trading community for ages.
On Diwali, both the stock exchanges permit trading for a limited time. The stock markets will be open for an hour on 24th October 2022.
Diwali is considered to be a period that brings in wealth and prosperity. Thus, it is considered a good time to invest in quality stocks or to begin your investing journey.
The following are some of the Investment themes investors can look into which has tailwinds attached to them:
Riding the Banking Momentum
The banking sector is standing at the cusp of a broad-based credit up-cycle. The tailwinds are coming in from all directions.
Gross Non-Performing Assets (GNPA) which is an indicator to gauge asset quality is at a decade low.
Further, the banks are sitting on comfortable capital as indicated by their CET1 ratio. The CET1 ratio of banks currently stands at an average of 13.6% vs 10.6% in FY2014.
Moreover, the overall credit growth trend has been buoyant and the growth rate has been in double-digit since June 2022.
All these indicators and more suggest a happening time for the banking sector.
Time to benefit from the Lethargic IT
IT companies witnessed a significant boom during the pandemic. Post two years of massive profits and salary increases, the IT index collapsed.
The Nifty IT index fell nearly 30% from its peak in 2022. It corrected sharply due to the high valuations it was trading at.
From where we stand now, the sector appears in a reversal trend. The conditions especially of the quality IT companies as witnessed in their latest Q2 results are improving.
The slowdown in hiring and peaking of attrition coupled with a strong USD will aid the sector.
Re-opening the doors of Nifty Auto
The demand outlook for the Automobile sector appears positive now. The Two-wheeler segment is expected to make a comeback driven by positive rural sentiments, new launches, and the festive season. The recovery in auto sales is already visible in the latest monthly sales numbers.
The improvement in chip supply & capacity enhancement by OEMs will aid production.
The momentum in Medium and Heavy commercial vehicles (MHCV) is expected to continue aided by the Government Capex and increasing infrastructure activity.
The schools, colleges, and offices have reopened. This will support the demand for Buses and three-wheelers.
The comeback of demand, easing commodity costs, and lower supply constraints make the route appear less bumpy for the Auto OEMs and Auto Ancillaries.
Putting Capital in Capital Goods
The Government has been continuously focusing on infrastructure development. The finance minister has urged the central ministers and departments to frontload capital expenditure.
Most companies have witnessed good growth in their order book. The prices of key raw materials such as steel, copper, ferrochrome, and aluminum have witnessed a significant decline. The falling commodity costs and the price hikes would aid the margins of the companies.
The companies which are focused on Indian operations are in a better position. They benefit from the increasing demand back home and get to take advantage of the lower commodity costs due to uncertain global macros.
The above are some of the sectorial themes which appear attractive from where we stand now. I hope the festival of Diwali brings Wealth, Prosperity, and more importantly good health into our lives.
For the last three weeks, the Benchmark Index is trading in a range of 16800 to 17350 levels amid volatility. The candles for the last three weeks are having tall wicks on both ends which indicates indecision among the traders due to volatility. On 30th September, Nifty50 formed a bullish hammer candlestick pattern on the weekly chart at 16800 levels and will act as an anchor point in further trading sessions. The Benchmark has closed above its 21 & 50 EMA which is placed at around 17100 & 16820 levels.
Follow-up buying is expected as we have sustained above 17100 levels today which could take us towards 17500 levels soon. On the lower side, 16800 will act as an important support in the coming trading sessions.
Expectations of the Week:
Globally the markets will be reacting to the Industrial Production output of the USA. In August, this figure dropped 0.2% against an expectation of a rise. Whether the Factory activity has improved or declined further will be keenly observed. The Chinese economy has significantly slowed down, it contracted 2.6% in Q2FY22. The Q3FY22 GDP numbers that are slated to release would help investors gauge the course of the Chinese economy better. Back home, the quarterly results of the companies will occupy the center stage. D-street will be interested to hear the management commentary about future earnings growth trajectory. Amid a host of important events coming up, investors are advised to remain cautious and prudent with their investing picks. Nifty50 closed the week at 17,185.7, down 0.75%.