Let me talk about the open positions first. On Friday I had asked to book profits in Hindustan Petroleum, which had rallied well in the last few days. For Monday, I would suggest to hold on for any profits bookings. We will wait for a couple of days and then take a call if we need to trim any positions. For now, I don’t think any exit is really necessary.

Let me now shift to what stocks to buy in this market on 18 January. The market enters a critical week as there are a slew of important quarterly results on the way. Most of the results till date including Infy, HCL Tech and HDFC Bank have been robust and the focus will be to build on some interesting themes on these. Here are two trading ideas for the day.

· You can look to buy Piramal Enterprises for short term trade around Rs.1625 for targets of Rs.1800. You can expect a short term rally on the stock as it has been shortlisted by the Committee of Creditors to take over DHFL. The short term impact will be positive.

· One more thing you can do is to use the Friday correction to accumulate HCL Tech at Rs.985 for targets of Rs.1100 over next 1-2 months. Apart from solid growth and margins, it trades at 25-times historical earnings, which is cheap in the IT sector.

In the previous week, the Nifty closed just above 14,400 and the Sensex closed just above 49,000. Both the indices faced resistance on Friday and the Sensex lost 570 point while the Nifty lost close to 150 points. You must be prepared for a pre-budget spike in the VIX towards the 28 or even 30 levels as expectations build volatility in the markets.

While Infosys and HCL Tech flattered last week, on Saturday HDFC Bank results were much better than expected. In fact HDFC Bank did better than street expectations in terms of profitability, growth and asset quality. This is expected ot be positive for other banking stocks also as helps to dispel short term concerns in the banking space after the RBI FSR.

There is really no let up in the buying by foreign portfolio investors. FPIs were net buyers to the tune of Rs.971 crore on Friday while DFIs sold Rs.942 crore. The FPIs have bought to Rs.19,000 crore in equities in the first two weeks of January, on top of Rs.130,000 crore infused in November and December. However, FPIs have been sellers in debt in Jan-21.

Over the weekend, the Dow and the NASDAQ closed lower by nearly 90 bps while markets were generally lower across Europe and large parts of Asia too. The SGX Nifty is trading lower in early trades on Monday and the future trajectory would largely depend on the way Asia opens and how the Dow Futures pans out during the day.

An important takeaway has emerged from quarterly results, although it is too early. The big question in 2021 was whether the quarterly performance of Indian corporates would be able to justify the valuations. Till now we have seen that companies have done better in terms of growth and operational profitability and that is a good trend to begin with.

At the outset, the Committee of Creditors or COC had clarified that there would be some critical parameters on which the vote would be given. While the total quantum of payment for DHFL was important, the COC also gave a big weightage to factors like upfront cash payment, investment into the DHFL, clarity on the insurance JV etc.

On the above lines, the COC voted overwhelmingly in favour of Piramal Enterprises to take over Dewan Housing. Nearly 94% of the votes for Piramal were favorable. PEL has committed close to Rs.38,000 crore as the total sum payable of which over Rs.12,000 crore will be paid up-front, which was perhaps what clinched the deal in their favour.

The COC have given a much higher weightage to upfront cash payment, which is where PEL appears to have scored. In addition, Piramal Enterprises has also committed to infuse capital into Dewan Housing in order to turn around the company. Piramal also does away with the confusion over the insurance business, which it will take over.

While the COC has not spoken anything on record, the indications are that the COC actually found the Oaktree offer to be too convoluted. Oaktree also lost out on the much lower upfront payment that it was offering and the constraints on its taking over the insurance business of DHFL. Adani was not really in the race as its quote was much lower.

There are two important IPOs that are likely to hit the markets during the current week. The first one is Indian Railways Finance Corporation or IRFC, which is a PSU company affiliated to the Ministry of Railways. The IRFC IPO will be an Rs.4633 crore IPO in which the government will look to reduce its stake via offer for sale.

The IRFC IPO opens on 18 January for subscription and it will close on 20 January. This is part of the government effort to raise as much of disinvestment revenues as possible during the current financial year. The government had set a target of Rs.210,000 crore via disinvestments and with the IRFC issue, the target will just get to Rs.20,000 crore.

The other IPO slated to open during the week is of Indigo Paints which opens for subscription on 20 January. The subscription will close on 22 January. The Indigo IPO will be an Rs.1170 crore IPO which will include a new issue of Rs.300 crore and an offer for sale of Rs.870 crore. Early stage investor, Sequoia Capital, will also partially exit its stake in the IPO.

Even the promoters of the company will be taking a partial exit in the OFS. Indigo Paints operates at an all-India level in the highly profitable decorative paints segment. Both the IPOs put together will be raising close to Rs.5800 crore in the new issues market this week. The IPO of Indigo Paints stock is already quoting at 50% premium in terms of the GMP.

The Excise duty collections have jumped sharply higher in the first eight months of the Apr-Nov 2020 period. Actually, the excise collections were up by 48%, largely led by a spike in excise collections on petrol and diesel. It may be recollected that when GST was introduced in 2017 the government had subsumed excise duty into GST.

However, some of the products like alcohol, petrol, diesel etc were kept out of the ambit of GST and they continued to attract excise duties as before. The idea then was to accommodate the aspirations of the state governments. Incidentally, in the last five years, the government has aggressively hiked excise duties on oil to boost revenues.

Excise duty during the first 8 months of fiscal 2020-21 stood at Rs.196,342 crore compared to collections of Rs.132,899 crore in corresponding period last fiscal year 2019-20. This is a jump in excise duty collections of nearly 48% YOY. This is despite that during these 8 months only 44.9 MT of diesel were sold compared to 55.4 MT last year. Petrol was a similar story.

The real reason likes in the aggressive spike in the rates of excise duties of petrol and diesel. During the year 2020, the excise duty was raised by Rs.13/litre on petrol and Rs.16/litre on diesel. This hike was done in two tranches and the whole idea was for the government to make the best of the sharp fall in crude oil prices globally to enhance revenues.

The four major IT companies in India i.e. TCS, Infosys, HCL Technologies and Wipro have already announced the results and in all the cases the results were much better than expected. Two things have emerged in these four results. Firstly, the revenue and profit growth plus guidance is very attractive. Secondly, operating margins were very attractive.

Let us look at financial performance first. In all the cases, the top line growth was above average but profit growth benefited from smart cost control measures despite higher manpower costs. In terms of guidance, TCS does not give guidance about the future performance as a matter of policy, but the others gave guidance that was flattering.

If you take a quick look at the other 3 players i.e. Infosys, HCL Tech and Wipro, then the guidance on revenues has been quite robust. All three have guided revenue growth of 2.5% to 3.5% for the Mar-21 fourth quarter. That is largely driven by solid traction in IT spending in the key global markets like the US, UK and EU. In retrospect, the concerns expressed by Gartner on IT spending look quite overstated.

The second big story of IT companies is on the operating margins, which is a critical parameter. It stood out for all four companies as a high growth and robust indicator. TCS led the sweepstakes with over 26% OPM while Infosys was close behind at above 25%. Infosys has substantially largely narrowed its OPM gap with TCS, which was the cause of valuation divergence between TCS and Infosys in the first place.

Even the other two players i.e. HCL Tech and Wipro saw 300 basis points expansion in OPMs with both of them positioned with OPMs comfortably above 21%. This is the first time in recent memory that the growth in OPM has been so robust and also so decisive. COVID forced Indian IT companies to manage costs better and cut down on attrition, even as employee costs were actually higher.

Here are some key market triggers that will impact the trading and investment scenario in the coming week.

· Nifty and Sensex held 14,400 and 49,000 levels respectively. Options data hints at Nifty in range of 14,000 to 14,600 with a sharply higher VIX levels due to pre-budget volatility.

· For the month of Dec-20, CPI inflation came in at a multi-quarter low of 4.59% which should boost prospects of RBI sustaining its accommodative stance.

· Despite IIP coming lower at -1.9%, the higher trade deficit led by non-oil imports in Dec-20 signals a likely pick-up in IIP in the coming months

· HDFC Bank Q3 results were positive on the growth and the asset quality front and that is likely to be sentimentally a positive for banks in India.

· Over 190 companies including Bajaj Auto, L&T, Asian Paints, SBI Life, HDFC Life, SBI Cards & Ultratech to announce results during the week and set tone for markets

· Markets will be watching Reliance Industries for triggers on ARPUs, GRMs and petchem margins when RIL announces its results on 22 January

· Talking about COVID risk to markets, a lot will depend on the success of the vaccination scheme which will cover 30 crore frontline persons in the first round in India

· Two big IPOs, IRFC and Indigo Paints will raise around Rs.5,800 crore between them. It will be a good gauge of the appetite for IPOs among investors in India

· FPI infused Rs.17,000 crore in January till date in first two weeks and traders can look forward to aggressive pre-budget buying setting into specific sectors in the economy.

· As Joe Biden takes over as the next US President on 20-Jan, the focus will be on the trajectory of the $1.9 trillion stimulus and the US stance on China and immigration

· Key Asian data points for the week include Japan IIP, BOJ meet, Japan PMI, China IIP and China retail sales and GDP numbers. Key US and European cues include US jobless claims, PMI, home sales, EU inflation, ECB rates decision and EU PMI numbers

As of now it is too early to say whether there will be a change in stance how different it would be. But one thing I can tell you from past observation is that in politics and business; the more things change, the more they stay the same. Democrats may try to impeach Trump but it is very likely that not much may change with respect to American policy.

Let me talk about the corporate tax cuts offered by the Trump government. One concern expressed by the financial markets across the world is that with a majority in the Senate, Biden may unwind the tax cuts implemented by Trump. While that fear had let to a correction in the markets, it is now reconciled that such an about turn is impractical.

What we need to understand and appreciate is that billions of dollars in the form of tax benefits have already been distributed to US corporations and that is one of the major reasons for the stratospheric levels of the Dow and NASDAQ. Any reversal at this point could lead to virtual implosion in market value. Biden will prefer to leave the tax cuts as it is.

There is the second worry on fracking on Federal lands. Biden has long been a strong opponent of fracking for shale oil in Federal lands whereas Trump was willing to prospect for oil anywhere. Will Biden put brakes on fracking? Joe Biden may not be a big shale bull like Trump but he realizes that there is a lot of money at stake in the US shale industry.

The stakes are in the form of millions of jobs and downstream businesses that shale has created. In addition, there is billions of dollars in debt. Above all, thanks to shale, the US has emerged as the swing producer of oil. If Biden puts curbs on fracking, it would mean the US becomes a price follower than a price setter. Biden will not want to concede that mantle either to Saudi Arabia or to Russia.