Volatility in markets to continue (Market Watch)


Markets have a mind of their own and they show what they can do. Last week they rose on four of the five trading sessions and the benchmark indices touched around the highs made in the middle of March. From there on they fell and corrected quite sharply. They ended the week with gains of 903.91 points on BSE SENSEX or 1.89 per cent to close at 48,782.36 points. NIFTY gained 289.75 points or 2.02 per cent to close at 14,631.10 points. The broader indices saw BSE100, BSE200 and BSE500 gain 2.07 per cent, 2.06 per cent and 2.17 per cent respectively. BSEMIDCAP gained 1.80 per cent while BSESMALLCAP was up 3.17 per cent.

The highs on the BSE SENSEX intra-week made on Thursday was 50,375 points, a level last seen on the 18th of March and lost about 1,600 points. It is important to note even after losing 1600 points in a little over a day and a half, the BSE SENSEX gained 900 points. NIFTY, lost over 400 points from the high of 15,044 points and gained 289 points for the week. Markets have been super volatile without doubt and money making is becoming that much more difficult or easier, depending which way you look at it.

The Rupee gained 95 paisa or 1.27 per cent to close at Rs 74.06 to the US Dollar. Dow Jones lost 168.64 points or 0.50 per cent to close at 33,874.85 points.

Thursday saw April futures expire on a volatile note. After gaining over 180 points intra-day, NIFTY surrendered 150 points and ended with gains of a mere 30 points. For the series, the gains were 570 points or 3.98 per cent. Incidentally, at the end of the previous week, the monthly gains on April futures were a mere 16 points. This means that as much as 555 points were added in four days of trading.

The GST collection for the month of April 2021 was a record Rs 1.41 lac cr which is the highest figure ever. Considering the fact that the comparable figure last year is not comparable as we had a complete lockdown, this figure is impressive as it is. Even considering that partial lockdown exists in many parts of the country currently, the figure may not be repeated in May, it still remains commendable.

Reliance reported impressive profits for the fourth quarter and yearly results. The company reported a net profit of Rs 14,995 in 4th quarter 2021 versus 6,546 for the same quarter in the Financial year 2020. On an annual basis the company reported a net profit of Rs 53,739 cr in FY21 versus Rs 39,880 cr in the previous year.

PowerGrid Infrastructure Investment Trust is tapping the capital markets with its units in a price band of Rs 99-100. The fresh issue is for Rs 4,993.48 cr while the offer for sale is for Rs 2,741.51 cr. The issue has opened on Thursday, the 29th of April and closes on Monday, the 3rd of May. The trust would own assets in the power transmission business and the initial five assets would be acquired from the sponsor, PowerGrid Corporation of India Limited, a Maharatna company. Currently 76 per cent of the capital of each of these five SPV’s would be acquired and going forward as they complete two years of being in operation, the balance 26 per cent would be acquired in a phased manner.

This would be the third invite to be listed and the first from the CPSE stable after IRB and India Grid. The returns from the trust as mentioned in the document indicate that the pay-out would amount to Rs 11-12 per unit for the first three years. This pay-out would be in three different components consisting of interest payment, dividend and return of capital. The expected ratio would be 60 per cent, 20 per cent and 20 per cent respectively. The interest payment would be taxable in the hands of the investor while the return of equity would be non-taxable. Also, about a fourth of the dividend income would be tax free. Effectively it could be said that 75 per cent would be taxable and 25 per cent tax free. Assuming the pay-out of Rs 12, it could be assumed that for an investor with a normal taxable profile, he would earn Rs 6 after paying tax of Rs 3 on the taxable income and Rs 3 tax free, making this a hybrid instrument earning 9 per cent tax-free returns in the initial period of three years.

The SEBI has introduced a provision where key employees of mutual funds would be given a fifth of their income on a cost to company basis in the form of investments in the funds that they operate. This would allay the fear of many investors who question whether the fund manager has any skin in the game. While leading fund houses have already been doing the same, the general diktat would be a welcome step.

Coming to the Covid-19 front, the world saw 15,28,28,230 patients, 32,06,828 deaths and 13,01,13,140 patients recovering. In India, we saw 1,95,57,457 patients, 2,15,542 deaths and 1,59,92,271 patients recovering. Compared to the previous week, the world saw 57,36,381 new patients, 93,544 deaths and 53,86,019 patients recovering. In India we saw 25,97,285 new patients, 23,231 deaths and 19,07,161 patients recovering. A massive drive to create infrastructure required is on in India and we should be better off in the next fortnight or so.

Coming to the markets, the election results declared so far are on expected lines with probably the margin of victory of TMC in West Bengal being better than expected. With NDA retaining power in Assam and likely to win Puducherry, they have fared as expected. The LDF retaining Kerala and breaking a tradition of almost five decades, where the ruling front is ousted, would be a shocker for the Congress led UDF. The DMK has won Tamil Nadu which was expected but their margin of victory is not as big as surveys had anticipated. In terms of market expectations, nothing significant on the election results will impact markets either way.

With extreme volatility being witnessed, markets continue to be in a trading zone. With Dow Jones not sure of the trend and tightening of rules in India expected, economic activity would take a back seat in the initial half of May. While there should be an improvement on the covid-19 front by the month end, things would be in a fluid situation till then.

The best strategy would be to buy on sharp dips and sell on strong rallies. We have seen how markets react and last Thursday and Friday were classic examples of the same. Trade cautiously.

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