A corrective bounce on the cards

Euphoria in the primary market is already there with subscription levels of over 32.25 lakh forms in two consecutive issues. However, the same is missing from secondary markets.

The period under review from July 15 to July 21 saw BSE Sensex lose 705.54 points or 1.35 per cent to close at 52,198.51 points. Nifty lost 221.85 points or 1.42 per cent to close at 15,632.10 points. Markets during the four trading sessions, gained on one day, were flat on one day and lost on two trading days. What is significant is the fact that the benchmark indices made a new closing high on July 15 and a new intraday high on July 16. These were 53158.85 on closing basis and 53,290.81 on intraday basis for the BSE Sensex. Similar levels for NIFTY were 15,924.20 and 15,962.25 points.

In primary market news, the IPO from Zomato was subscribed 40.38 times and the issue garnered overall subscription of Rs 2.13 lakh crore against an issue size of 9,375 crore. Retail saw subscription of 7.87 times and there were 32.29 lakh applications in all. What could be termed as quite surprising was the fact that the employee quota remained undersubscribed and could garner support for just about 0.62 times of the allocation of 65 lakh shares.

The other IPO from Tatva Chintan Pharm Chem Limited which consisted of a fresh issue of Rs 225 crores and an offer for sale of Rs 275 crores, received overwhelming support and was oversubscribed 182.04 times. The issue saw 32.44 lakh applications being received and this issue not only beat the much-hyped Zomato issue, but clearly showed the extent to which euphoria has hit the primary market. The issue garnered subscription of Rs 63,860 crores.

Shares of GR Infraprojects Limited listed on the bourses and had an excellent performance with shares gaining a staggering 108.70 per cent on day one. The company had allotted shares at Rs 837 and the shares closed at Rs 1,746.80. Shares closed lower on Tuesday at Rs 1,721.80.

Shares of Clean Science Technology Limited also listed on Monday. The company had through an offer for sale allotted shares at Rs 900. Shares closed at Rs 1,585.20 and gained Rs 685.20 or 76.13 per cent. On Tuesday, shares closed substantially higher at Rs 1,738.45.

Markets are very interestingly poised currently. We saw Dow Jones correcting significantly on Friday and Monday, (July 16-19) when they lost 299 points and 726 points. Tuesday saw a recovery when they gained 550 points. That still leaves a deficit of 476 points to be made up. One is not sure what would happen on Wednesday night in the US, but if markets gain there as appears as of the time of writing the article, we should see a better start to trading on Thursday morning in India.

Further, having lost quite sharply in the last two trading sessions, a corrective bounce is on the cards. For the record, losses on BSE Sensex were 942 points, while they were 291 points respectively on Monday and Tuesday. As previously mentioned, while the euphoria in the primary market is already there with subscription levels of over 32.25 lakh forms in two consecutive issues, the same is missing from secondary markets. The stage was getting set, but with this sharp correction, the inevitable is delayed. We need to first cross the previous highs, get into a euphoric mood and then peak out. The possibility of this could set in when July futures expire on Thursday (July 29).

The strategy till this onset should be to sell on strong rallies and buy into sharp dips. The rotation should also see one exit from the momentum mid-cap and small-cap stocks, which have run up significantly. Be patient and exercise caution while trading. The idea is to build up cash in the portfolio and not remain fully invested.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)