On Friday, the Sensex scaled 45,000 and the Nifty scaled 13,500 as the accommodative monetary policy fuelled further upsides in the market. The BSE Sensex was up by 2.1% while the Nifty-50 climbed 2.2% for the week on the broader market.

The rally was not just restricted to large caps for the week. The S&P BSE Mid-cap index rose 2.8% while the BSE Small-cap index ended the week with attractive gains of 2.6%. There were as many as 65 stocks in the BSE-500 index gaining anywhere between 10% and 50% during the week.

Some of the star performers during the week included KNR Construction, Tata Power, Maruti Suzuki, Sun Pharma, Adani Enterprises, Hindalco, Oberoi Realty, SAIL, Tata Chemicals, and Adani Power. Most of the stock price movements were stock specific.

Over the last few weeks, massive farmer protests are raging on the borders of Delhi as farmers from Punjab and Haryana seek to enter Delhi in a bid to pressure the government. However, after holding on to its stand the Indian government looks to be relenting and may roll back some of its agricultural reforms.

The genesis of the fear of Indian farmers stems from the believe that the legislation passed in September would virtually dismantle India’s regulated agricultural markets and actually put a bar on government buying wheat and rice at guaranteed prices. This could put the farmers at the mercy of private companies, which the government has stoutly denied.

For one, the government is open to imposing taxes on new wholesale markets to ensure a level playing field. In the event of disputes between, government may allow farmers appeal to a higher court than is currently permitted. But the biggest concern of big farmers is that they may lose their clout and their income from grain lending. That is the key.

The vaccine progress has surely come as a boon for the stock markets, but the question is whether it has impacted the commodity markets too. If you go by recent trends in oil gold and other industrial commodities, then the impact has been quite profound.

During the month of November 2020, riskier commodities like base metals and crude oil trended higher in the markets while safe havens like gold and silver struggled to hold value as there was greater certainty in the market. This was due to improvement in risk appetite amid positive development on the vaccine.

Gold and silver have traditionally been two precious metals have been the storage of last resort. However, as the safe haven demand got dented prices of gold and silver slipped to recent lows. In fact, gold and silver have been consistently slipping for the past three consecutive weeks.

However, there has been an uptrend visible across base industrial metals pack and crude oil. The factor that lent support to commodities is signs of progress on US stimulus talks along with weakness in US Dollar Index. The US could be standing on the threshold of a massive $908 billion Coronavirus aid plan.

The base metals and crude oil held on to gains amid optimism over virus vaccination. Further, base metals prices are also benefiting from upbeat demand outlook from China, the world’s undisputed leader in commodity demand. China reported robust factory activity as well as services activity data, raising hope that demand for industrial metals are back.

The monetary policy to be announced on Friday could have little by way of surprises. The repo rates are expected to be maintained at 4%. However, there is a possibility that the RBI could signal that accommodative stance would not continued and that could be a worry.

On Thursday, the Nifty just edged higher by 20 points to 13,134 on despite the volatility of options settlement. While the again enjoyed sharply positive A/D ratio at 35:15 in favour of advances, one worry for sentiments could be the impact of US supply chains.

In big news on Thursday, HDFC Bank took a hit after the RBI restrictions on its digital business and that kept private banks subdued. However, auto stocks led by Maruti Suzuki showed traction after the monthly numbers with were positive.

Global flows continued to be supportive. FPIs were net buyers to the tune of just Rs.3637 crore on 03 December while DFIs sold Rs.1440 crore. Markets could be wary on Friday in the first half as there is a chance that MPC may do a rethink on accommodative stance.

Most rate sensitives like banks, NBFCs, autos and realty did well on Friday after better than expected cues from the monetary policy. For example, the Monetary Policy Committee or the MPC kept repo rate unchanged at 4% but more importantly it chose to maintain its accommodative stance of the policy. That assures low rates and adequate liquidity.

The reverse repo rate stayed at 3.35% and the bank rate stayed put at 4.25%. For banks and other rate sensitive sectors, this was a clear indication that rates would remain low in the foreseeable future. Also, the government will keep the liquidity taps running so supply of cash with banks will ensure easy transmission of rate cuts also to the end borrowers.

On Friday, key rate sensitive indices reacted positively. For example, the Nifty Bank, Nifty Auto and Nifty Financial Services were up in the range of 1.0% to 1.5%. Even the Nifty Realty index was up 0.63%, despite larger structural problems. Most NBFCs also rallied sharply in the aftermath with PFC and Bajaj Finance among the key gainers.

A bigger boost to the rate sensitives also came from the growth outlook. For example, the RBI expects the Indian economy to contract at just about 7.5% in FY21 as against its original estimate of 9.5%. This trend has been largely led by a spurt in rural demand the urban demand is also expected to catch up in tune with lifting of the lockdown.

The very fact that the RBI policy has prioritised growth over inflation is gratifying for the markets. This will also result in a smooth borrowing program of the government in the midst of surging fiscal deficit.

Let me clarify that there are really no stock buying ideas ahead of the monetary policy. I do not think that the policy will have any profound impact on the markets except creating some short term volatility as the policy options for the RBI are fairly limited.

Normally, as a matter of policy, it is best to avoid buying fresh stocks on the last day of the week. However, this week you can make an exception as positions are light and the undertone appears to be strong. Here are two stocks for the short term trade.

· You can buy PSU power major NTPC at Rs.98 for short term targets of Rs.115 in the next 1-2 months. There is a general re-rating happening across profitable power stocks and NTPC also offers a good dividend yield story.

· The second stock for buying is a momentum stock after the ban on digital and credit transactions on HDFC Bank. The big beneficiary would the second largest card issuer, be SBI Cards. Buy SBI Cards at Rs.840 for target of Rs.900 in 1 month.

I would likely to broadly sound a word of caution here as markets may be two-faced. Traders need to digest RBI policy, there will be profit booking and US has sounded logistic COVID concerns. Strong support and low VIX could help for the time being!

You may recollect that on 03 December I had suggested booking profits on Tata Consumer. For Friday, you can book profits in Hindalco and DLF as both stocks have rallied sharply to offer trading profits. Here is a quick update on some of the positions still open.

UPL given at 480 (CMP-456) – Suggest hold at average price

Shilpa Medicare given at 501 (CMP-455) – Suggest hold at average price

Godrej Agrovet at 533 (CMP-515) – Suggest to hold

Cipla at Rs.760 (CMP-762) – Suggest to hold

Indian Oil Corp at Rs.87 (CMP-90) – Suggest to hold

Hindalco at Rs.225 (CMP-242) – Book Profits

DLF Ltd at Rs.189 (CMP-203) – Book Profits

Tata Steel BSL at Rs.35 (CMP-39) – Suggest to hold

Tube Investments at Rs.805 (CMP-835) – Suggest to hold

Manappuram Finance at Rs.173 (CMP-175) – Suggest to hold

Canara Bank at Rs.109 (CMP-110) – Suggest to hold

Bharti Infratel at Rs.225 (CMP-239) – Suggest to hold

Tata Chemicals at Rs.427 (CMP-455) – Suggest to hold

Markets could be volatile on Friday the 04 December due to weekend caution and credit policy worries, especially on policy accommodation. However, the undertone remains very encouraging as long as Nifty holds 13,000 and the VIX remains below 22 levels.

You are right and the deleveraging has been happening rapidly. In fact, Tata Power’s Mundra unit made a second repayment of bank loans worth Rs.1550 crore to its lenders. This is in line with broad goal of reducing debt at the power unit at Mundra.

This comes on top of the Rs.2600 crore of loans repaid by Mundra plant in October taking the total loans repaid in the last two months to Rs.4150 crore. Tata Power Mundra unit has been in trouble for several years due to lower contracted tariff and higher global coal costs.

Tata Power has gross debt of Rs.44,495 crore and net debt of Rs.36,480 crore. It has set an internal target to bring down net debt to below Rs.25,000 crore to reduce financial risk on its balance sheet and make the business more viable.