Good Morning Toasters!

Ssup friends! Last week’s closing had no bearing on this week’s start, as the Nifty50 and Sensex, both underperformed, closing down from positions of strength. Auto companies begin reporting numbers this week, with Bajaj Auto, TaMO and MOSL all scheduled to drop #. Nifty Auto is up ~6.3% in the last 1M.

In global market news, it’s a big week for Wall Street, as over 1/3rd of the S&P500 report quarterly numbers, including and in no particular order, Apple, Microsoft, Amazon, Meta, Alphabet and Exxon Mobil. To add to the mix, the US Fed is scheduled to meet on Wednesday, with consensus estimates suggesting a sure-shot 0.75% rate hike.

We return with a Technical Setup, covering ABB India, which has given a breakout on the weekly time frame, retesting the setup as traders have started to accumulate. The stock’s up ~56% in the last year and has recently formed a HH HL pattern.

Market Watch

Nifty 50: 16,631.00 | -88.45 (-0.53%)
FII Net Sold: INR 844.78 crore

Sensex: 55,766.22 | -306.01  (-0.55%)
DII Net Sold: INR 72.26 crore

Global Markets News

Wall Street has a big week ahead; what’s up and what do you need to know?

• Wall Street has a big 5 days ahead – 1/3rd of the S&P 500 is scheduled to drop their quarterly numbers this week, including and in no particular order, Apple, Amazon, Alphabet, Microsoft, Meta and Exxon Mobil (something for everyone)
• If that wasn’t enough, the Federal Reserve or master printer of currency for the world is scheduled to meet on Wednesday and is likely to raise interest rates by 75 bps (accordingly to consensus polls) as they attempt to tame record inflation levels (something about CPI being highest in 41 years), while also releasing GDP # for the world’s largest economy
• The technology-focused Nasdaq, which is down ~24% this year, has risen by ~7.3% in July, while now being on course for its best month since November’20, as investors realign expectations amidst reduced valuations & realigned growth targets
• Likewise, the S&P 500, which includes a variety of stocks (tech, non-tech), after a punishing start to the year (down 17% in 2022), is now up 5% in July, including last week’s 2.5% gain, with names like Tesla & Netflix all reporting gains even as they missed estimates and reported slowing growth

Interesting! Tell me more?

• Netflix rose 17% last week, the company’s best weekly performance since Jan’18, while Tesla added 13% in gains, even though both companies missed growth estimates, albeit with performance not as bad as initially feared
• While Meta, Amazon and Alphabet are expected to report slowing growth, as recession fears shrink advertising budgets & consumption trends, Apple is expected to drop double-digit quarterly growth (Apple man), while Microsoft’s booming cloud business is likely to report strong growth once again
• Another possible reason to highlight a ‘potential’ resurgence towards stocks has been a lowering in treasury yields, which initially made switching capital (from stocks to debt) attractive, but with long-term yields suffering on account of recessionary fears, investors & volumes have begun flowing back into the equities (something to track)
• In other related news, the European Central Bank surprised markets, raising rates for the first time in 11 years, increasing the interest rate by 0.5% vs the initial expectation of a 0.25% hike

Got it! Final thoughts?

• Global manoeuvres (Fed + Stocks) have reasonable bearing/impact on Indian markets, with the RBI likely keenly watching the US Fed’s actions, while Foreign Institutional Investors (FIIs) also reacting to the changing $ scenario
• The S&P 500 valuations have slumped this year, with the index trading at 16.9x its 1-year earnings forward, down from 21x at the end of 21, similar to Nifty50

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Around the World 🌎

• Biggest compromise of all times – Inflation in the U.S. @9.1 % annually (an all-time high in nearly 41 years) combined with supply shortages is forcing people to look for cheaper alternatives in beers and cigarettes. The retail store sales of economy beer brands like Busch Light, Icehouse and Milwaukee’s Best Ice saw an increase of 5.4 % on a YoY basis after declining almost 11% last year. In the cigarette segment also, Marlboro has been losing ground to the cheaper discount cigarette maker Liggett Vector
• Were investors prepared for dismal quarterly results? – In a surprising move, S& P 500 surged nearly 5% in July after a dismal performance at the start of the year notwithstanding the not-so-good quarterly results of almost all the companies. Netflix reported a loss of nearly one million subscribers yet its stock rallied 7.3 % in the next session. Tesla and Bank of America also posted slimmer-than-expected profits, still, the share prices increased 9.8 % and 3.4% respectively the next day
• Is digital advertising losing its charm? – The digital advertising sector,  which did exceptionally well during the pandemic as people stayed indoors and demand the products grew is already showing signs of a slowdown because of the slowing economy. Snapchat reported a growth of only 13% in its second quarterly results, the slowest in its history of becoming a public company. Consequently,  the share price plunged 39% in a day, its second largest daily % drop

Technical Setup

ABB India going strong

• ABB India Limited is an integrated power equipment manufacturer supplying the complete range of engineering, products, solutions and services in the areas of Automation and Power technology. The majority of revenue comes from its Indian Business arm (83%)
• Analyzing ABB India on a weekly time frame indicates that the stock has recently given a breakout after a long consolidation (see image below)
• With a market cap of over 55,000 crores, the infra giant retested breakout levels (2470-2530) before continuing its breakout momentum

New name, new game. Tell me more about this

• Looking at the daily time frame, prices have been making higher highs and higher lows resulting in a steady up-move in prices (see image below)
• The stock has been trading above all 4 moving averages (10, 20, 50 & 200-day SMA’s)

Great Technicals! Are the Financials and Numbers strong too?

• ABB India is the 3rd largest listed entity in the Capital Goods – Electrical Equipment sector and is a part of the Nifty Infrastructure index
• The emerging company has reduced debt in its previous quarter leading to a debt-free status and a Piotroski Score of 9
• The company’s 1 Yr CAGR for Sales and Profit stands at 23% and 107% respectively (TTM)
• The company stands at a strong promoter holding of 75%, while FIIs and DIIs own 3.5% and 8.6% respectively

Interesting! Final thoughts?

• On a weekly time frame, the breakout followed by a retest gives a  positive indication
• On a daily time frame, prices making HH & HL and trading above all moving averages adds strength
• 1M / 3M returns stand at 57% / 89.3%, indicative of a strong run

Keep a track?

What else caught our eye? 👀

L & T follows an asset-light strategy

• Giant engineering company Larsen & Toubro has sold several of its non-core assets in recent years to become an asset-light company
• It recently sold eight of its operational roads and one power transmission project to Edelweiss Fund for an enterprise value of Rs.7000 crore
• Though the deal was signed earlier this month,  it is awaiting approval from SEBI and NHAI

Is India heading the EV way?

• The future of EV two-wheelers looks bright in India with sales expected to increase by 78% by 2030
• EV have big advantages over ICE vehicles like cheaper ownership costs, less running and maintenance costs,  being environmentally friendly and full government support
• However, they will have to face major challenges like less number of charging stations,  long charging time and many of them catching fire due to battery issues

Results Preview:

Tuesday, 26th July: Asian Paints, Bajaj Auto, Larsen & Toubro, United Spirits Ltd, Tata Power Company, Union Bank of India

Wednesday, 27th July: Bajaj Finance, Bosch, Colgate-Palmolive, Maruti Suzuki, Tata Motors, United Breweries, Laurus Labs, Dixon Technologies, Clean Science

Educational Topic of the day

Knock-out Option

A knock-out option is a derivative contract in an option, which loses its entire value if the price of the underlying asset reaches a certain level and the option contract expires worthless.

In such a case, the buyer does not get a payoff and the option writer receives a fixed payoff if the price of the underlying reaches a certain level.

Knock-out price decides the level of options contract that the buyer or seller (writer) can hold.

Edited by Raunak Karwa

Let’s connect, I always love hearing from you. Hit me up at Raunak_Karwa on Twitter or Raunak.karwa@finlearnacademy.com