Better to exit positions in small- & mid-cap stocks

The period of August 19-25 saw markets gain further ground and the benchmark indices posted newer highs on both intraday and closing basis. BSE Sensex gained 314.72 points or 0.56 percent to close at 55,944.21 points, while Nifty gained 65.80 points or 0.40 per cent to close at 16,634.65 points. It was a four-day period and benchmark indices gained on two days and lost on one with the fourth session being flat. The closing high was 55,958.98 on BSE Sensex made on August 24, while the intraday high was 56,198.13 points made on August 25. As far as Nifty is concerned, the closing high was 16,634.65 and intraday high was 16,712.45 points, both made on Wednesday.

Four primary market issues listed in the period gone by and all four of them recorded losses on listing day. This has clearly affected the sentiment as far as the primary market is concerned and there has been no fresh issue that has tapped the markets in the last fortnight. The reasons for this poor performance are not too far to see. It's a clear-cut case of greed of the PE and the Promoter egged on by the merchant bankers. When the sellers want the overstretched valuation and the so-called grey market premium as well, it's a case of eating the cake and having it too.

The greed has killed the sentiment and now new issues are dreading hitting the market. HNI's have lost money in the last six of the eight issues to have listed and are not comfortable with new issues. To revive the sentiment, someone will have to come with a blockbuster issue in terms of valuations where all investors who are allotted shares make a killing. It looks unlikely that anyone would do so.

The four issues to list in the period under review were Car Trade Tech Limited. Against an issue price of Rs 1,618, the share closed day one at Rs 1,500.10. It slipped further and closed today at Rs 1,476.35, down 8.76 per cent. The second issue was from Nuvoco Vistas Corporation Limited which closed at Rs 531.30 against an issue price of Rs 570. The share recovered marginally to close at Rs 532.60, down 6.53 percent. The third issue was from Aptus Value Housing Finance India Limited which had issued shares at Rs 353. At end of day one the share was down and closed at Rs 346.50. The share recovered marginally to close at Rs 347.75, still down by 1.5 percent over the issue price. The fourth and final share was from Chemplast Sanmar Limited which had issued shares at Rs 541. The share closed day one at Rs 534.90 and lost further ground today and closed at Rs 527.60, down 2.48 percent. While the loss appears small, the delivery percentage compared to the issue size has been less compared to other issues. This could act as a hurdle in share price improving in the short term.

The period ahead August 26 to September 1 begins with August futures expiring on Thursday (August 26). The current gains in the series are a massive 856 points or 5.42 percent. With just one day to go, there is no way the bulls would squander the lead and maybe the bears have a tough time in recovering any ground. I would not be surprised if the bulls try to pull the markets in the last hour of trading on Thursday.

This would be followed by trading for the September series on Friday. This would be a crucial day for markets and could be classified as a make-or-break day for the markets. In all likelihood this could be a massive swing day with markets gaining big and then seeing a reversal as well. While the possibility for such an event is likely, it does not mean that this is the only outcome possible.

The strategy for the coming period under review would be to book profits and await sharp corrections for any buying. Exit positions in small and midcap stocks and remain invested in large cap stocks. High volatility would be the order of the day and caution should be exercised.

(The author is the founder of

Kejriwal Research and Investment Services, an advisory firm)