Monday's sharp correction makes markets move uncertain

Markets were topsy-turvy in the week gone by.

The correction which had set in on Friday of the previous week (2nd August) continued and we saw a sharp sell-off on Monday. Probably this was a fall which post-covid market participants had never seen before. One must ignore of course the fall witnessed on June 4 when results were declared for the general elections which were lower than what the exit polls had said. This saw a sharp reaction from the markets in India and also globally.

There has been recovery from the lower levels, but whether we are out of the woods is still an issue which is debatable. To add to the worries of the Indian markets is the fact that with results season coming to the last reporting week, the comfort one looked for in numbers showing growth in revenues and profits seems to be missing. This makes markets that much more expensive at a time when the one big factor against them is valuations.

The BSESENSEX lost on three of the five trading sessions and gained on two. BSESENSEX was down 1,275.04 points or 1.58 per cent to close at 79,705.91 points while NIFTY lost 350.20 points or 1.42 per cent to close at 24,367.50 points. The broader markets saw BSE100, BSE200 and BSE500 lose 1.24 per cent, 1.38 per cent and 1.46 per cent respectively. BSEMIDCAP lost 1.01 per cent while BSESMALLCAP was down 1.86 per cent.

The Indian Rupee was under pressure and lost 21 paisa or 0.25 per cent to close at 83.96. Dow Jones was choppy and lost on two of the five trading sessions. It lost 239.72 points or 0.60 per cent to close at 39,497.54 points.

The lows made in our markets on Monday during the sharp fall were at 78,295.86 points on BSESENSEX and at 23,893.70 points on NIFTY. These will become not only significant support levels for any downturn but also a pivot to decide any trends in the medium term on the market. On the upside previous tops are a longer resistance, but levels of 24,500 on NIFTY and at 80,500 points on BSESENSEX become important levels which have to be surpassed and maintained for any uptick to continue in the markets. Until then we can say that the broad trading zone for the markets would be in the range of 23,900-24,500 on NIFTY and at 78,300-80,500 on BSESENSEX.

Primary markets have been very active and we saw three issues listed during the week. The first of them was the listing of Akums Drugs and Pharmaceuticals Limited listed on Tuesday the 6th of August. The company had issued shares at Rs 679. The discovered price was Rs 725 on both the stock exchanges. The share hit the upper circuit at Rs 797.45 on BSE and Rs 797.50 on NSE. It closed a tad lower at Rs 796.25, a gain of Rs 117.25 or 17.26 per cent. By Friday, the share traded higher and closed at Rs 803.70, a gain of Rs 124.70 or 18.37 per cent.

The second share to list was that of Ceigall (India) Limited which had issued shares at Rs 401. The share made its debut on Tuesday with the discovered price being Rs 413 and closing day at Rs 386.05, a loss of Rs 14.95 or 3.72 per cent. On Friday, the share gained some ground and closed at Rs 396.95, a reduced loss of Rs 4.05 or 1.01.

The third share to list was that of Ola Electric Mobility Limited who had issued shares at Rs 76. Shares debuted on Friday, August 9 and the discovered price was Rs 76. Shares then closed at the upper circuit of Rs 91.18 on BSE, a gain of Rs 15.18 or 19.97 per cent. On NSE, the closing price was factionally higher at Rs 91.20.

Besides this we had two issues which opened and closed for subscription. The issue from Unicommerce Esolutions Limited opened on Tuesday, August 6 and closed on Thursday August 8. The issue at close was subscribed 168.39 times overall. The QIB portion was subscribed 138.75 times, HNI portion 252.48 times and Retail portion was subscribed 131.15 times.

The issue from Brainbees Solutions Limited had opened on Tuesday, August 6 and closed on Thursday, August 8. The company is an online and off-line retailer of accessories, clothes and everything that mothers need, new born babies and kids wear up to 12 years of age. They have a popular website firstcry.com. The price band of the issue is between Rs 440-465. The company is currently making loss and is yet to make profits. It's a one-of-a-kind company and has a head start in business. The issue was subscribed 12.22 times overall with QIB portion subscribed 19.3 times, HNI portion subscribed 4.68 times and Retail portion subscribed 2.31 times.

Both the issues which closed for subscription last week, would list on Tuesday the 13th of August.

The week ahead also sees the issue from Saraswati Saree Depot Limited which would open on Monday the 12th of August and close on Wednesday the 14th of August. The price band is Rs 152-160. The company is into the wholesale business of selling sarees and its predominant markets are Maharashtra. The company reported sales of Rs 610 crores for the year ended March 24 and an EPS of Rs 8.92. The PE band for the issue is 17.04-17.94 which is competitive with that of Sai Silk which is a retail brand based in South India. The wholesale and retail businesses are quite different in nature. The issue looks decently priced.

The week ahead has a trading holiday on Thursday the 15th of August when we celebrate our Independence day. This would cause a mild disruption and see markets seeing a break in momentum. On the positive side, indications from the FED suggest that there would be an interest rate cut in the US in the September meeting. Closer home, RBI in its bi-monthly meeting kept interest rates unchanged on expected lines. RBI believes that it is getting closer to its target of inflation rates and is monitoring the progress of inflation.

In a continuation of the Hindenburg saga, there is a spate of allegations now being made by Hindenburg against the present Chairperson of SEBI. There has been a denial put out from her explaining matters. This has now become a serious matter as the tone of accusations is against the regulator and implies, what can a regulator who has an issue herself, do against Hindenburg. Expect fast developments on this issue over the next 48 hours. I believe there may not be much action in the marketplace on this news in general. This now becomes a matter for the government and the regulator to act upon, as their authority has been effectively challenged.

Markets in the coming shortened four-day week will have a tough time to keep things under control. We were hit last week by a sell-off and the mood of FPIs is still not clear. They appear to be sellers on many more days than they are buyers. The biggest pocket of support is from Domestic institutions who seem to have compelling reasons to invest the sea of money that they are being flooded with. In such a scenario with no immediate news flow to significantly alter market direction, we should remain in a broad trading zone as mentioned above. The strategy would be to flow with the trend and use any meaningful rally to sell and book profits.

Trade cautiously.

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

(With inputs from IANS)