Book profits on rallies & use sharp dips to buy

The period January 6-12 under review saw markets continue their upward momentum. BSE Sensex gained on four of the five trading days and gained 926.89 points or 1.52 per cent to close at 61,150.04 points. NSE Nifty gained 287.10 points or 1.58 per cent to close at 18,212.35 points. While the momentum in the last three weeks after markets made a bottom on December 20 has been very strong, its time for some consolidation or correction taking place. Whether that would happen right away or after testing the closing highs would remain a point of debate. For the record, the closing high was 61,765 points on BSE Sensex and 18,477 points on Nifty recorded on October 18. In terms of value, we are less than 615 points on the BSE Sensex and 263 points on Nifty.

Results from the IT majors have been announced. Infosys has reported a growth in its revenues of 22.91 per cent in the quarter ended December 21. Revenues were at Rs31,867 crores against Rs25,927 crores in the year ago period. Its profit after tax was up 11.16 per cent from Rs5,215 crores to Rs5,822 crores. The EPS for the quarter was Rs 13.86 against 12.25 in the year ago period. Share price was up 1.18 per cent at Rs 1,877 for the day. Results were announced post market closure.

Wipro Limited announced its results where its revenues for the December quarter grew 19.2 per cent to Rs15,741.3 crores from Rs13,195.1 crores in the year ago quarter. Profit after tax fell 8.68 per cent to Rs2,419.8 crores from Rs2,649.7 crores. Its EPS was Rs4.51 against Rs4.58. Shares of Wipro closed at Rs691.35, a loss of 0.40 per cent.

TCS Limited declared its results for the quarter ended December 2021. Its revenues grew by 17.29 per cent to Rs50,090 crores against Rs42,706 crores for the previous year's quarter. Net profit grew 12.36 per cent to Rs9,806 crores against Rs8,727 crores. The EPS was Rs 26.41 against Rs 23.19 per share for the quarter. The company has announced a buyback of 4 crore shares at Rs 4,500 per share which is 1.8 per cent of the share capital. This would entail an amount of Rs 18,000 crores and would be by tender offer. The share lost 1.56 per cent to close at Rs 3,857.25. The buyback price is at a premium of 16.66 per cent to the closing price.

Looking at the three results, it appears that while growth is available for all the companies, there is some amount of pressure on margins which is more in the case of Wipro than Infosys and TCS. There is likely to be some pressure on the shares on this account. However, in case of TCS the buyback is attractive in terms of price premium to market price and this would therefore get negated. The share may see some upward momentum in the coming days.

In political news in India, the Election commission has announced one day poll in four states of Uttarakhand, Goa, Manipur and Punjab. There would be a seven-phase poll in Uttar Pradesh. The elections would begin from the 10th of February and counting would take place on 10th of March.

The two jokers in the pack as far as markets are concerned is Covid-19 and the US markets. While Covid-19 cases are rising, the only positive factor is that it is not leading to hospitalisation and deaths. It appears that the cases are much milder. US markets are a cause for worry and after they hit a new high last week, have been under pressure. The minutes of the FED meeting indicate that there would be a rate hike faster than expected and this could affect markets globally.

In India, FII selling was a concern. In the new calendar year, that seems to be behind us and markets have moved on. The good part is the number of demat accounts that have been opened has doubled. The number of demat accounts is 8.05 crore accounts against 4.08 crore during lockdown. What is even more interesting is that individual flows through SIP is Rs 4.57 lac crs over the last 5 years compared to an inflow of Rs 3.53 lakh crores in 7 years through FII's. The power of the retail investor collectively cannot be underestimated.

Coming to the markets in the period 13th January to 19th January, they would be under pressure post this rise that we have already experienced. How deep this correction could run is not ascertainable. However, it makes sense to continue to book profits on rallies and use sharp dips to buy into the markets. The budget is hardly three weeks away and is unlikely to have any unpleasant surprises for the stock market considering that the mother of all IPO from LIC would follow in March 2022.

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