While markets continue to rally strongly, risk-reward ratio seems to be tilting against the bulls


Markets were on a roll and posted big gains during the week gone by. They were up on four of the five trading sessions and corrected on just one day, posting new highs virtually every day. Currently BSESENSEX and NIFTY are at new intraday and lifetime highs. BSESENSEX gained 2,005.23 points or 3.57 per cent to close at 58,129.95 points while NIFTY gained 618.40 points or 3.70 per cent to close at 17,323.60 points. The broader indices saw BSE100, BSE200 and BSE500 gain 3.90 per cent, 4.01 per cent and 3.98 per cent respectively. BSEMIDCAP gained 4.85 per cent and BSESMALLCAP gained 3.89 per cent. The intraday highs made were 58,194.79 points on BSESNSEX and 17,340.1 points on NIFTY. It is interesting to note that the closings were quite close to the intraday highs, indicating no Friday weekend blues or selling pressure at the end of day and week.

The Indian Rupee gained 66 paisa or 0.90 per cent to close at Rs 73.02 to the US Dollar. Dow Jones had a flattish week losing on four of the five trading sessions and gaining on just one. The Dow Jones lost 86.71 points or 0.24 per cent to close at 35,369.09 points. The movement in the Dow indicates a period of consolidation and it would be important to note post this consolidation whether it begins to rise or lose more sharply. Currently the trend is unclear.

The primary market saw two issues open and close for subscription during the week. The first was Ami Organics Limited which had tapped the markets with its fresh issue of Rs 200 cr and an offer for sale of 60.59 lakh shares in a price band of Rs 603-610. The issue was subscribed an overall 64.59 times. QIB portion was subscribed 86.02 times, HNI portion was subscribed 155.44 times and Retail portion was subscribed 13.42 times. There were 15.52 lakh applications in all.

The second issue was from Vijaya Diagnostic Limited which had tapped the markets with its offer for sale of 3,56,88,064 shares in a price band of Rs 522-531. The issue was subscribed 4.54 times on the back of subscriptions from QIB’s whose portion was subscribed 13.07 times. HNI portion was subscribed 1.32 times and Retail portion was subscribed 1.09 times. Employee portion was subscribed 0.98 times. There were 3.91 lakh applications in all. The difference in response to the two issues is very clear and perception indicates that investors found the latter issue expensive and offering little or no scope for appreciation in the short term.

Markets have achieved sufficient amount of traction and more importantly momentum. The juggernaut has started moving and you have stock rotation which keeps the benchmark indices moving steadfastly, virtually without correction. How much more and how long? These are questions very difficult to answer because we are in uncharted territory and in such areas one can only make accurate predictions post the event like the top having been established. Suffice to say that the base parameters have been achieved and the eventuality is round the corner.

On the Covid-19 front, the world saw 22,11,37,173 patients, 45,75,690 deaths and 19,76,29,442 patients recovering. In India we saw 3,29,88,673 patients, 4,40,567 deaths and 3,21,38,092 patients recovering. Compared to the previous week, the world saw 43,70,422 new patients, 67,519 deaths and 39,32,046 patients recovering. In India we saw 2,93,643 new patients, 2,707 deaths and 2,49,450 patients recovering. The number of people who have been vaccinated has increased to 67.72 cr. This is higher by 4.63 cr during the week. The average daily vaccination is averaging about 65 lakh per day, which is certainly a healthy and encouraging number. We as a nation must keep up our guard against Covid and not let social distancing norms to be flouted.

The week ahead has a trading holiday on the last day of the week, Friday. This is on account of Ganesh Chaturthi. With the present momentum in the markets, one can expect to see markets move swiftly in either direction. This could be more stock specific and not necessarily the entire market. The strategy would be to book profits, sit on some amount of cash and not try to pre-empt a market correction which may not come when expected. Shift from a majority of the small and midcap stocks to the larger cap stocks and a select shopping list of institutional favourites in small and midcap. This is on account of the fact that money is still coming through the SIP route in mutual funds in even small and midcap schemes, which forces mutual funds to invest even though valuations do not justify.

I for one, believe we are at the last stage of the market rally in terms of value and the risk-reward ratio would hereon be against the bulls. However, acting prudently, I would resist from shorting the markets currently and would wait for confirmatory signals before jumping the gun.

As mentioned earlier, ride the rally, book profits and if compulsion forces you to buy, do so in the benchmark indices stocks alone.

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