Markets under pressure, expect more consolidation (Market Watch)

Markets were under pressure last week and the bull tide seemed to have turned the corner on Tuesday itself. BSESENSEX rose from the previous day’s close of 52,154 points intraday to a high of 52,516 points and then fell to close at 52,104 points, a loss of 50 points compared to the previous day. The fall from the high was 412 points. This broke the momentum of the markets and they fell for the next three days, and even wiped out the sharp gains registered on Monday of over 600 points. Similar was the case with NIFTY as well.

The week saw BSESENSEX lose 654.34 points or 1.27% to close at 50,889.96 points, while NIFTY lost 181.55 points or 1.20 per cent to close at 14,981.75 points. The broader markets saw BSE100, BSE200 and BSE500 lose 1.03, 0.67 and 0.56 per cent, respectively. BSEMIDCAP gained 0.63 per cent while BSESMALLCAP gained 1.23 per cent. If one sees the loss from Tuesday’s high of 52,517 points, the loss on the BSESENSEX was effectively about 1,600 points while the same on NIFTY from the top was 450 points, more than 2.5 times the actual loss mentioned above.

The Indian Rupee gained 10 paisa or 0.14 per cent to close at Rs 72.65 to the US Dollar. Dow Jones gained 35.92 points or 0.11 per cent to close at 31,494.32 points.

For those of my readers who would like to know what is happening to Robin Hood investors in the stock of GameStop, the share is down another 12 dollars from 52.66 to 40.59. This stock had hit a high of about 350 dollars less than three weeks ago. While the rally began with institutions short covering, it is now the Robin Hood investors who are unable to exit their stocks and are having a harrowing time. To add to their woes, Congress is also hearing this issue and it would be a long time if any outcome comes from these Congressional hearings. It does form an interesting case study for all market analysts of what should and should not be done.

On the IPO front, we saw two issues close for subscription in the week gone by. The first was Nureca Limited which was a fresh issue for Rs 100 crs and raised Rs 2,300 crs. The issue was subscribed almost 40 times and the Retail portion was subscribed over 166 times raising Rs 1,660 crs against the 10 cr issue.

The second issue was from Railway PSU, RailTel Corporation Limited which was an offer for sale of 871.53 lac shares. The issue received excellent response and was subscribed 42.42 times with Retail investors subscribing the issue 16.7 times. There were 23.79 lac applications.

With rising demat accounts being opened and new investors and traders flocking the capital markets, fund raising seems to be becoming much easier.

The REIT from Brookfield listed on Tuesday. The trust had launched its fresh issue to Raise Rs 3,800 crs at Rs 275. The issue had a poor debut and in four days of trading has already become the worst performing stock/REIT in new issues of 2020-21. There have been as many as 19 listings in just under eleven months of this financial year, and this unit is already down 5.83 per cent. Speaks poorly of the parentage and the name, Brookfield.

Readers would recall that I had advised readers to stay away from this issue as the properties under the trust were not as good as those owned by its competitors Embassy and Mindspace. Ultimately “BHAV BHAGWAN HAIN”. Price is king and one would have to accept the fact that market knows best. On current fundamentals, the units of Brookfield would continue to be under pressure in the short to medium term. For investors looking to invest in similar REITS, another instrument from Power Grid is likely to hit the market in March which would offer an attractive investment opportunity.

Speaking of the primary markets we have the issue from agro-chemicals manufacturer, Heranba Industries Limited looking to tap the markets with its fresh issue for Rs 60 crs and an offer for sale of 90.15 lac shares. The price band is Rs 626-627, with the issue opening on Tuesday the 23rd of February and closing on Thursday the 25th of February. The company had revenues of Rs 968 crs in the year ended March 2020 with a net profit of Rs 97.75 crore.

In the six months ended September 2020, the revenues have improved to Rs 619.21 crore with net profit of Rs 66.31 crore. The EPS for the year ended March 2020 was Rs 25.03, which makes the PE ratio 25.01 to 25.05 times. The company is in the manufacture of pesticides, herbicides and fungicides. It makes technical and formulations in all three categories and sells in the domestic and export markets as well. During the previous year the company had completed a major expansion by setting up a formulation plant in Sarigam, Gujarat. This unit has a currently utilised capacity of under 60 per cent which would allow the company to ramp up sales in the medium term. It has ample land at this unit where it proposes to set up a new technical facility. While the business is good, the products lack pricing power being a highly competitive industry. The valuations are rich, offering little upside in the short term.

The month of March has the potential to see a dozen primary market offerings hit the street. How many will actually bite the bullet is a million-dollar question. This will ensure that secondary markets see bouts of selling as investors look to keep cash for these issues. Secondly the inflow of FII’s seems to be on the reducing side. On the last trading day, it was just about Rs 120 crs and the figure has been dropping consistently. With interest rates expected to become positive from the current zero, there could be pressure on the abundant liquidity available globally.

February futures expire on Thursday the 25th of February. Currently the series is up 1,164.20 points or 8.43 per cent and bulls have a very strong control. With momentum faltering in the previous week for the first time, bears are likely to put pressure and redeem whatever they can. Expect bears to strangle the market and make a comeback even though it would be impossible for them to reclaim the series. There could be a pullback by bears in the remaining four days.

On the Covid-19 front, the world saw 11,16,54,017 patients, 24,72,387 deaths and 8,68,19,096 patients recovering. In India we saw 1,09,91,651 patients, 1,56,339 deaths and 1,06,89,715 patients recovering. Compared to the previous week the world saw 25,47,196 new patients, 66,915 deaths and 56,80,542 patients recovering. In India we saw 86,711 new patients, 666 deaths and 77,984 patients recovering. The number of patients recovering compared to new patients has dropped in the week gone by as there has been a spurt in cases in isolated parts of the country. This could be because of the unlocking of the economy. A couple of more weeks would decide the trend.

Coming to the week ahead, the momentum of the markets has broken and bulls are under pressure for the first time since the budget was presented. There would be more correction and markets would seek to consolidate the gains made since the budget which saw BSESENSEX gain over 6,200 points in February and NIFTY over 1,800 points. We have lost a mere 1,600 points on BSESENSEX and 450 points on NIFTY which is just about a fourth of the gains. Thursday, expiry day would be a day of extreme volatility and we could see markets gaining ground on the back of it being a new series beginning. For the first three days expect markets to trade with a negative bias.

Trade cautiously and await sharp dips for buying opportunities.

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