Weekend Investing Daily Byte - 5 Dec 2024

It has been a volatile day, but a fantastic one from the bull’s perspective as the market reached new heights. The topic for today’s discussion is whether the defense sector is once again becoming attractive and if this could be a game changer. We will also discuss the new announcements from the government

Table of Contents

Where is the market headed?
Sectors of the Day
Stock of the Day
Story of the Day :The Defense Sector

Where is the market headed?

Market Overview

The market has been volatile today, with a significant movement of over 350 points up, then giving up 300 points, and finally climbing another couple of hundred points. It’s been a volatile but decisive breakout from previous levels. Levels are very important, as I’ve been mentioning in recent sessions. I’ve been telling you that a 1,000-point run is possible once we cross the 24,500 mark, and we seem to be on the way to that milestone. The Nifty was up 0.98%

Nifty Next 50

Nifty Jr. gained 0.34%. This marks the ninth consecutive day of gains

Nifty Mid and Small Cap

Nifty midcaps closed near the highs of the day, up 0.43%, and small-cap indices also gained 0.48%, breaking the previous peak from the first week of November.

This run was unexpected, especially after the GDP numbers and the month of FII selling, but the market often has a mind of its own and is doing what nobody expected.

Nifty Bank Overview

The Nifty Bank Index also showed volatility but ended the day up 0.63%, getting very close to its all-time highs.

Advanced Declined Ratio Trends

Momentum indicators, such as the advance-decline ratio, were somewhat even, suggesting that the bullishness in the market was mostly driven by large-cap stocks.

Nifty Heatmap

Stocks like TCS, Infosys, Wipro, HCL Tech, Bharti, Trent, and ICICI Bank led the rally, alongside Titan and Reliance. Overall, the Nifty 50 heatmap was largely green, though the Nifty Next 50 Index saw some red, with stocks like Adani, Jio Finance, PNB, ABB, Divis Labs, and SRI Cement showing losses.

Zomato and Swiggy, which lead the online delivery space, saw strong performances, with Zomato up by 4.5%. VBL also gained 2.36%, shrugging off rumors of a GST hike. Bosch and Motherson also zoomed up, while JSW and LTIM performed well too.

Sectoral Overview

Sectorally, IT stocks were the biggest gainers today, with a +2% move. Other sectors like consumption, infra, and private banks followed suit. Real estate, PSU banks, and pharma took a breather today. However, all segments except FMCG are now in the green for the past week and are gradually gaining ground over one- and three-month periods

Sectors of the Day

Nifty IT Index

The IT sector stocks, including TCS, Infosys, LTI, Mindtree, Wipro, and Tech Mahindra, are doing well. The IT index has reached a new high, breaking out from the resistance line and then retesting it as support before continuing its upward movement. This is a classic, textbook-style gain, up 1.95%. Overall, the IT sector is looking solid going forward.

Stock of the Day

BSE

In the stock spotlight today, we have BSE Limited, which saw a jump of 13.6%. This move is significant because BSE Limited’s performance often signals the overall market health. When BSE rises, it suggests that the market is likely in a positive cycle since BSE profits when markets are doing well.

Story of the Day :The Defense Sector

Now, let’s discuss the defense sector, which is making headlines. The government has approved five major capital acquisition proposals totaling ₹21,700 crores. This includes the acquisition of 31 new water jet aircraft, upgrades to air defense systems, reinforcement of coastal guard assets, and refurbishment of various military assets. The push for self-reliance in defense, moving towards Atmanirbhar Bharat by promoting indigenous defense manufacturing, is gaining traction. The defense budget for 2024-25 is a whopping ₹6.2 trillion (approximately $74 billion), which is the largest allocation among all ministries. Around 13% of the total government expenditure is earmarked for defense.

This major push in defense spending has led to a rally in defense stocks. Companies like Data Patterns, Bharat Dynamics, and Mazagon Dock have seen substantial gains. Over the past week, in anticipation of these moves, stocks like Kochi Shipyard, Data Patterns, Mazagon Dock, and Bharat Dynamics have posted double-digit returns. Over the past year, some of these stocks have seen incredible gains—185%, 141%, and 103%, respectively. Some of the top performers over the last three years include Kochi Shipyard (up 1,736%), Bharat Dynamics (up 883%), and Hindustan Aeronautics (up 597%).

The defense sector saw some corrections in the past three months, but it seems that the sector might be resuming its upward momentum. For instance, Kochi Shipyard saw a 14x return in just 15 months. Momentum strategies have capitalized on these explosive gains, creating windfall profits for investors. Bharat Electronics has surged 20x in 48 months, and Hindustan Aeronautics has gained 27 times in 48 months. The growth potential in this sector is staggering, and it’s a classic case of needing a trend-following strategy with a proper exit plan to capitalize on these kinds of explosive moves.