Book profits in mid-cap and small-cap stocks

The period under review from July 29 to August 4, saw markets finally break out and register new intraday and closing highs on both the BSE Sensex and NSE Nifty. The BSE Sensex gained a whopping 1,926.06 points or 3.54 per cent to close at 54,369.77 points. Nifty gained 549.40 points or 3.38 per cent to close at 16,290.20 points. The intraday highs were at 54,465.91 points and 16,290.20 points respectively. Markets gained on four of the five trading sessions.

With the breakout above 53,200-53,300 and 15,950-15975 happening decisively, markets have entered new territories and would have a free run from hereon. Typically, the first resistance if any comes after gains of three per cent from the breakout level. This would be at levels of 54,600-54,800 on the BSE Sensex and 16,425-16,450 on Nifty. While we have moved substantially in the last five trading sessions, we still have some way to go before this first hurdle or resistance is reached.

July futures, which were of a five-week duration ended on the first day of the trading period under review. While markets gained for the day, they expired virtually unchanged. The net series change was a mere 12 points loss or 0.08 per cent. The series expired at 15,778.45 points. This kind of series end has not been witnessed for a very long time. Considering the fact that FPIs have been net sellers in the series, this close clearly indicates that bullish bets have been rolled over and markets are likely to gather steam and pace as the series progresses.

This is exactly what happened at the beginning of trading for August with decent gains on all three days. The buoyant mood present in the primary market with large number of issues tapping the capital markets was extended to the secondary market. Within just a couple of days movement in the secondary market, one could expect the mood to turn to euphoria as the momentum picks up speed and extends itself to a larger number of stocks.

Dow Jones too has had a good outing and hit new highs touching a level of 35,192 points on an intraday basis. On a closing basis the high was 35,144 points.

Coming to the primary market there is massive action that is currently taking place. Shares of Glenmark LifeSciences Limited and Rolex Rings Limited would be listed in the period under review.

Four IPO's have opened on Wednesday (August 4) and would close on Friday (August 6). The retail interest in the markets has become so strong that I am tempted to say that I am scared. At the end of the first day of bidding, all the four issues were oversubscribed based on excellent support of retail investors who it appears are certainly feeling left out.

Devyani International Limited was subscribed 2.69 times. It had Retail subscription of 11.37 times and 10.6 lakh forms. Exxaro Tiles was subscribed 4.67 times. It had Retail subscription of 9.29 times and 4.67 lac applications. Windlas Biotech Limited was subscribed 3.18 times. It had Retail subscription was 6.22 times and there were 5.23 lac applications. Krsnaa Diagnostics was subscribed 1.98 times. It had retail subscription of 9.59 times and there were 6.66 lac applications.

Three more issues would be opening in the week beginning Monday (August 9). They are from Car Trade Tech Limited, Nuvoco Vistas Corporation Limited and Aptus Value Housing Finance India Limited. All these issues are expected to be big issues in terms of size. More details subsequently.

Very clearly, while the mood is euphoric, no doubt one would have to wait for this to turn to disappointment. There would be two types of disappointment where one the allotment would continue to be by way of lottery and the bigger danger would be when the grey market premiums which people or investors look at simply reduce, half or vanish overnight.

While its party time at Dalal Street and the secondary market too has finally caught on, it makes sense to continue booking profits in midcap and smallcap stocks as the rally continues. A small tip which should be helpful is the fact that the stocks included in BSE Sensex and Nifty are only from the large caps. The last leg of the rally is only in the heavyweight stocks.