Markets precariously poised – looking for triggers

It was a tough week for the markets and contrary to expectations, they lost ground last week. It was a short trading session of a mere three days and markets lost on all the three sessions. BSE Sensex lost 1,108.25 points or 1.86 per cent to close at 58,338.93 points. NIFTY lost 308.70 points or 1.74 per cent to close at 17,475.65 points.

The broader markets saw BSE100, BSE200 and BSE500 lose 1.34 per cent, 1.35 per cent and 1.31 per cent respectively. BSE midcap was down 1.26 per cent while BSE smallcap was down 0.82 per cent. Only on Wednesday were markets able to open with gains before turning negative and losing once again.

The Indian Rupee lost 28 paisa or 0.37 per cent to close at Rs 75.90 to the US Dollar. Dow Jones was flattish and on a weak note. It lost 264.89 points or 0.78 per cent to close at 34,451.23 points.

The Indian markets are now showing signs of becoming nervous. We are quite close to levels from which if the markets fell even 1 per cent further, they could be termed as being under severe pressure. In the past they have bounced from such conditions after falling for a day or two, and the recovery has been swift. Which way they behave this time is however uncertain and would be watched carefully by market participants.

The Russia-Ukraine crisis has become never ending. We are almost 50 days old and each passing day is adding to the crisis, not bringing us closer to a solution. The implications of this crisis will have far reaching and telling impact on the world, not just Russia and Ukraine. While crude is something which everyone is aware of, the greater impact would be on food and industrial products and raw materials. Ukraine is a rich country in terms of raw materials whether it is minerals, wheat and corn or sunflower oil.

To add to this major uncertainty, the impact of covid-19 and the sharp rise in cases in China is another crisis in the making. What shape or proportion this could take is uncertain as information from China is just not up to the mark? For the records it must be mentioned that we have seen a rise in cases in India as well and this should be a warning for all concerned. People have stopped wearing masks and seem to have become quite casual in their approach to Covid-19 which could become worrisome. While currently there is no alarm, it sure needs to be monitored and taken seriously.

Results season for the quarter ended March 2022 and the year ended March 2022 are going on. There is stress in many results as is being witnessed on the input and raw material front. While sales have shown growth as prices of most products have gone up, the full impact of raw material and other cost increases has not been passed through. This is affecting the performance of companies as well. The next quarter is likely to see improved results as costs in the current quarter (April-June) are seeing some softening and cooling.

LIC is gearing up for its divestment as per media information. They are preparing to launch their issue in the first fortnight of May as per media reports. The embedded value as per September 2021 is Rs 5.4 lakh. Earlier, the valuation was expected to be around 2.5 times the embedded value and the issue was for 5 per cent of the company. Now the talk is of the valuation being drastically reduced to around half at 1.25 times the embedded value and the issue size at 7.5 per cent of the capital. The government is working towards getting large participation from pension and sovereign funds. They have given a big sweetener in the form of a commitment that there would be no dilution of stake within 2 years of the issue being launched.

Assuming this issue is launched, it would be a must hold in portfolio opportunity for investors. This issue could act as a revival issue for the primary markets which is currently struggling and trying to find its feet post the introduction of new norms of subscription, leverage and anchor holding period.

There is a large pipeline of companies which are waiting to launch their issues as well. With LIC done and out of the way and if it happens, it would open the flood gates for others to follow.

Markets are precariously poised and need some triggers to improve from hereon. The trigger could be in the form of FII’s stopping to sell and remaining neutral as well. The formal launch of LIC IPO could also act as a trigger, as the issue would only be launched if the government and merchant bankers are comfortable with the issue going through. One must remember that in the LIC issue, the largest fund in the country, LIC would not or could not be the knight in shining armour to save the issue.

In the coming week, expect the market to trade with volatility. They would look for some positive cues to gain ground. If that does not happen, and selling or negative news flow continues, pressure on markets would make them vulnerable. With little or no leeway available, one sharp fall could bring about a series of losing days in the market. In such a scenario, trade light and use rallies to sell into. Buy only on really sharp dips and focus on large cap stocks and select midcap and Smallcap stocks. Trade cautiously.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)

20220417-131606

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