Good Morning folks,
Last week's market was very volatile but traded in range before giving a breakout in the last session. Today in our report we have included our weekly view & along with daily view for the markets. Since many companies are issuing rights issue, we covered that as well in today's report. Also, from today we decided to touch upon one option strategy daily.
Global cues:
• Stocks closed mixed on Friday, with the S&P 500 and Nasdaq posting modest gains while the Dow fell.
• 7 out of 11 sectors were positive led by utilities on Friday. Tech shares saw a setback this week as investors rotated out of some of the high-flying tech shares.
• Consumer sentiment index fell to 73.2 in July from 78.1, compared with expectations for a reading of 78.6. Read more about the index at https://www.investopedia.com/terms/c/consumer-sentiment.asp
• Dow decline can be attributed to a greater than expected jobless claims.
• Weekly update:
• S&P 500 advanced 1.3%,
• Dow rose 2.3%
• The Nasdaq declined by 1%
• The continued rise in COVID-19 cases in the U.S. has been partly offset by optimism over the scope for additional fiscal stimulus.
• The White House and lawmakers face increasing pressure to come up with an additional fiscal stimulus plan ahead of the expiration of supplemental unemployment benefits at the end of July.
• Asian Markets are flat and Dow futures are flat.
• SGX Nifty is trading 20 points down. Can expect a flat opening.
Indian markets:
• Nifty on Friday ended at a fifth-week high up by 1.5% at 10901.
• Oil & gas along with financial names contributed the most.
• FIIs were net buyers of worth Rs. 697.08 Cr and DIIs were net sellers of worth Rs. 209.42 Cr.
• Barring IT index, all sectors ended in the green.
• Rossari Biotech IPO listing for Rs 496 crore on July 23. IPO subscribed over 79 times.
• M&M Financial Services to raise Rs 3500 crore via rights issue at 75% discount to CMP,
Trends:
• Nifty formed a bullish candle followed by a hammer on the daily chart, indicating strong buying interest at key support levels.
• The index had been seeing buying at lower levels, as suggested by the ‘Hammer’ formation in the previous session. While there are reasons for optimism, the bulls have to be mindful of the ‘Hanging Man’ visible on the weekly chart.
• Last two day’s upmove is supported by volumes.
• Overall markets are bullish for the upcoming week and may touch at least 11200 in the coming week.
• Also the gap which has been left during the fall has to be filled, which also indicates that markets might go till 10300 levels.
• But overall bank nifty has to support Nifty if the market is to touch higher levels.
• This week market will be buy on dips.
• The overall lower volatility is supporting the market to form a higher base with buying interest on any declines. Options data suggest an immediate trading range between 10,600 and 11,400 levels.
Options strategy for Monday:
• If Nifty opens flat or gap down wait for trend before buying or selling. And if nifty opens with a good gap up of 70-100 points, it can be a good selling opportunity. The same applies for Bank Nifty as well.
• Today’s trading range is 10780 to 11,000.
• Resistance in Nifty is at 10960 & 11000.
• Support in Nifty is at 10850 & 10800.
• Maximum call OI of 17.87 lakh contracts was seen at 11,000 strike, which will act as crucial resistance for tomorrow.
• Maximum put OI of 18.07 lakh contracts was seen at 10,800 strike, which will act as crucial support for tomorrow.
• Data shows FPIs and DIIs together have offloaded shares worth over Rs 8,000 crore in July so far. On the other hand, Sensex gained 6% on a month to date basis. This means, there is a good chance that millions of new investors who came into the market during the lockdown are buying shares in hordes.
• Given the relentless up-move in the market, the stage is set for some consolidation. The market moves are getting unhealthy at higher levels and that is a good signal that a mild corrective move might happen
Stock picks of the day:
• HDFC bank reported a 19.6 percent year-on-year growth in standalone profit for the quarter ended June 2020. Showed a bullish candle pattern in the last half an hour of trade. Stock expected to test 1,127 levels.
• NALCO closed at 34.45 levels on Friday, expect the stock to test 34.10 levels of trade and strong selling pressure.
• Titan surged 3.80% on Friday with a strong structure, expect the stock to move up to 1,010 levels in the early hours of trade on Monday.
• M&M hits over 5-month high; stock zooms 61% in 3 months, the stock closed at 588 levels on Friday evening. Expect surge with high volumes and the stock testing 600 levels.
Rights Issue Amid Pandemic
Several companies, including Mahindra Finance, Shriram Transport Finance among others are planning to raise funds (aggregating to over Rs 10,000 crore) through rights issue amidst the Covid-19 pandemic.
Aditya Birla Fashion and Retail
Issue Size: INR 995 crore
Rights Issue Price: INR 110 per equity share
CMP: INR 115.15
Entitlement Ratio: 9 shares for every 77 fully-paid shares held on the record date of July 1, 2020
Record date: Thursday, July 1, 2020
Issue Opens: Tuesday, July 8, 2020
Issue Closing: Tuesday, July 22, 2020
Mahindra and Mahindra Financial Services
Issue Size: INR 3,089 crore
Rights Issue Price: INR 50 per fully paid-up equity share
CMP: INR 208
Entitlement Ratio: 1 fully paid equity share for every 1 fully-paid share held on the record date of July 23, 2020
Record date: Thursday, July 23, 2020
Issue Opens: Tuesday, July 28, 2020
Issue Closing: Tuesday, August 11, 2020
Shriram Transport
Issue Size: INR 1492 crore
Rights Issue Price: INR 570 per equity
CMP: INR 662 per through rights equity shares
Entitlement Ratio: 3 shares for every 26 eligible equity shareholders held on the record date of July 10, 2020
Record date: Thursday, July 10, 2020
Issue Opens: Thursday, July 16, 2020
Issue Closing: Thursday, July 30, 2020
Option Strategies
Bull Call Spread :
View: Monday Bullish (We expect NIFTY to increase a little)
Implementation:
Buy 1 At-the-money call option
Sell 1 Out-the-Money call option
Take the Nifty current price: 7846
Buy 7800 Call option (ATM) @ 79rs premium (Pay 79)
Sell 7900 Call option (OTM) @ 25 rs premium (Get 25)
We will pay net 79-25 = 54rs premium
Now let's take 3 scenarios
Both our call options will go to zero. Our net payoff is Rs 54 which we paid as premium
2. Nifty expires at 7800
Again both options will come down to zero. The net payoff will be Rs.54
3. Nifty expires at 7900
Value of 7800 Call option is 100rs but we had paid 79 premium for this option. So the value gained is Rs. 21
Value of 7900 Call option is 0, and we had got 25rs already as premium.
The so-net value gained this time
= 21 + 25
=46
Let's look at the payoff diagram and a table for every strike price to get a clear understanding.
As we can notice,
The Max Profit and Max Loss is limited, so the risk is managed at all times regardless of the expiry price.
The Breakeven point lies somewhere between 7800 and 7900, which were our 2 call options.
In the below table, you can check the payoff at all expiry prices. Notice our profit stays the same @ 46 even if the Nifty goes as high as 8500.
Results on July 20
SBI Cards, Bombay Dyeing, Den Networks, Sterlite Proj, India Finsec, Arihant Avenues
Disclaimer
Please note that all the recommendations/views/ levels we provide are based on the theory of technical/fundamental analysis and personal observations. This does not claim for sure/ certain profit or any fixed returns. we are not liable for any losses you make on the given takes and levels. You are advised to take your position with your sense, discretion, and judgment. only you would be responsible for outcomes of your trades
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