Stock Market Expiry- Top Few things before the opening bell

Bears seem to have kept tight control over Dalal Street, pushing the benchmark indices down by nearly one percent on September 28 ahead of the monthly expiry of futures & options contracts. The fall in global peers and consistent FII selling weighed on sentiment.

The BSE Sensex plunged 509 points to 56,598, while the Nifty50 fell 149 points to 16,859 and formed Doji kind of pattern on the daily charts, indicating indecisiveness among bulls and bears about the future market trends.

"Normally, such formation after a reasonable weakness calls for a pullback rally from the lows. But the overall market trend is still weak and there is no confirmation of any buying emerging from the lows," said Nagaraj Shetti, Technical Research Analyst at HDFC Securities.

He thinks the Nifty is now placed at the crucial support of 16,800 levels as per the concept of change in polarity. The said level has been a crucial value area in the past and has witnessed significant moves from its supports and its resistances in the past.

Having declined down to the support, there is a possibility of a minor pullback rally in the market from near 16,800-16,750 levels in the next 1-2 sessions. Immediate resistance is placed at 17,000 levels, the market expert said.

The selling pressure was also seen in broader markets as the Nifty Midcap 100 and Smallcap 100 indices fell 0.3 percent and 0.5 percent, respectively, while India VIX, the fear index, increased by 2.44 percent to 22.10 levels.

Harsha Engineers makes a bumper listing with 36% premium

Harsha Engineers International clocked gains on listing as expected before rising further but most analysts advise booking profits amid market turmoil. The stock started off the first day's trade with a whopping 36 percent premium over issue price despite nervousness in equity markets. It climbed further six percent as the day progressed to take total gains to 43 percent over issue price.

Analysts said high premium at listing is justified with the IPO generating stronger than expected demand as qualified institutional investors' portion got subscribed over 178 times. Also, the ask price is fairly valued compared to industry peers.

"We recommend booking partial profits while remaining can be kept for the long term as the company is a comprehensive solution provider offering diversified suite of precision engineering products across geographies and end-user industries and has long-standing relationships with leading clientele," said Astha Jain, senior research analyst at Hem Securities.

Rajnath Yadav, research analyst at Choice Broking, urged investors to exit given the market volatility. Although Prashanth Tapse, senior vice president of research at Mehta Equities, sounded "very optimistic" on Harsha Engineers with its dominant position, he too advised booking profits in the current market scenario. "Risk takers can hold with a long-term perspective," he added.

Santosh Meena, head of research at Swastika Investmart, termed the company as a proxy play on India becoming a global manufacturing hub: "Those who applied for listing gains can maintain a stop loss at Rs 400. Our recommendation for investors is to hold the allotted shares and long-term investors can accumulate the stock on dips."

Harsha Engineers, which is the largest manufacturer of precision bearing cages in India, raised Rs 755 crore from the public issue with a strong 74.70 times subscription during September 14-16. Of the total issue size, Rs 455 crore was raised through fresh issuance which will be used in repayment of debts, capital expenditure towards the purchase of machinery, and existing production facilities.

Sensex was down 860.62 points or 1.48 percent at 57,238.30, and the Nifty down 285.50 points or 1.65 percent at 17041.80 following weak global cues. This is the fourth straight day of selling on Dalal Street.

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Key data points to watch out for next week:

 Foreign institutional investors (FII) remained net sellers for yet another week, to the tune of Rs 4,362 crore, following strong dollar and US bond yields post the Fed’s aggressive policy tightening. As a result, they are net sellers on a monthly basis as well, to the tune of Rs 2,445 crore so far in September, against purchases worth more than Rs 22,000 crore the previous month.

If the US dollar index and US 10-year treasury yield remain strong, then experts feel that Foreign Portfolio Investors (FPI) are unlikely to buy aggressively going forward. Hence, the movement of both these factors will be crucial for FII flows in the coming weeks.

On the other hand, Domestic Institutional Investors (DII) were net buyers the past week, to the tune of more than Rs 1,100 crore, but they are net sellers (nearly Rs 1,900 crore) so far in September.

5) Global economic data cues

US GDP numbers for the quarter ended June (Q2-CY22) will be keenly watched by global investors, given the Fed's aggressive approach towards controlling inflation.

US GDP has contracted by 1.6 percent in Q1-CY22, while for Q2-CY22, the fall in growth was revised to 0.6 percent against 0.9 percent contraction in advance estimates in July.

"The direction of the Fed's rate hikes in the future may be influenced by this figure, therefore international markets will be closely monitoring it," Apurva Sheth, Head of Market Perspectives at Samco Securities, said.

Oil prices remained volatile and corrected further last week as the USD hit more than 20-year highs, and recession fears mounted due to aggressive policy tightening by central banks globally, raising concerns about the outlook on oil demand.

International Brent crude futures ended at $86.15 per barrel, the lowest since January 2022, down 5.7 percent for the week. The prices have dropped 30 percent in the last three-and-half months.

Further fall in oil prices is expected to support the RBI commentary as we are among the largest oil importers, experts said. Hence, market participants will be closely watching this space.

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SRF: Building capacity to seize the opportunity

 Over-supply and sustainability are key challenges for the industry
-       Recently, several new manufacturing lines of BOPET have been commissioned, with many more expected to turn operational in the coming months (majorly in India and China). This may create a demand-supply imbalance, resulting in an oversupplied market, which, in turn, will exert pressure on profitability of industry players.
-       Macro headwinds in Europe are also dampening demand, which is expected to be short-lived. With the easing of headwinds in Europe, the demand-supply imbalance is expected to normalize in the medium term, driving growth in the global Packaging Film industry.
-       Also, certain headwinds such as high logistics cost and supply-chain constraints will continue to weigh over margin in the near-term.
-       Poor waste collection and the nascent stage of recycling facilities globally can be a significant threat to the industry in the long run, considering the growing demand for sustainability.
 
Valuation and view
-       SRF's Packaging business clocked a revenue/EBIDTA CAGR of 21%/39% over FY16-22 on the back of an aggressive capacity buildup and improvement in operating margin.
-       Given the growing need for Packaging Films across Food, Electronics, and sustainable solutions, SRF's strong capability will enable it to capitalize on the growth opportunity.
-       We expect 17% revenue CAGR from the Packaging Films business over FY22-24, with EBIT margins to decline to 18.2%/18% in FY23/FY24 from 19.8% in FY22, due to an expected pressure on BOPET margin, with new capacities coming on stream.
-       Going forward, we expect SRF to register a revenue/EBITDA/PAT CAGR of 18%/16%/20% over FY22-24.
-       While we expect the management to cash-in on these opportunities, we maintain our Neutral rating, given to its rich valuation, which has been priced into its near-term upside.

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