Brace For Heightened Volatility Ahead

The January 9-15 period was a tough one for the markets, which were weak and then we had a weak Friday on Dow where markets fell sharply. On expected lines, we cracked on Monday and one saw the BSE Sensex lose over a 1,000 points and make a seven-month low. Nifty lost 350 points and a crucial support of 23,200 points as well.

Currently markets are trading in no-man’s land and are looking for support. The period saw the indices lose on three of the five trading sessions and gain on two. An important development to note was the fact that small-cap and mid-cap stocks were substantially bigger losers compared to the large cap. This trend is likely to continue as one sees investors post-Covid capitulating as markets experience severe volatility.

The period under review ended with BSE Sensex losing 1,075.92 points or 1.38 per cent to close at 76,724.08 points, while Nifty lost 386.80 points or 1.64 per cent to close at 23,213.20 points. The low made on Monday was equal to the one made in the first week of June 24 when election results for Lok Sabha were declared. Dow Jones had a volatile week, but ended as flat as flat could be. After gaining on three of the four trading sessions and losing on just one, it ended with a minor loss of 10.08 points or 0.02 per cent to closeat 42,518.28 points.

In primary market news, the issue from Laxmi Dental Ltd would close on Wednesday (January 15). With less than an hour to go for subscription to close, the issue was subscribed 113.69 times with QIB portion subscribed 110.38 times, HNI portion subscribed 147.33 times and Retail portion subscribed 73.17 times. The company as the name suggests is into the business of providing dentists with consumables for patient care. The company is a B2B and B2C company. Besides this there were two listings with shares of Standard Glass Lining Technology Ltd which were issued at Rs160 and listed on Monday (January 13), closing at Rs199.22, a gain of Rs39.22 or 24.51 per cent.

The second share to list was Quadrant Future Tek Ltd, which listed on Tuesday (January 14) and had issued shares at Rs290. The share closed at Rs538.50, a gain of Rs248.50 or 85.68 per cent. Primary market issuances seem to have slowed down, but the pipeline continues to be very strong.

Coming to the markets in the period ahead during January 16-22, there would be heightened volatility and particularly so in the mid-cap and small-cap space. These sectors are overowned by retail investors and classic example of this is their holding in PSU stocks from the railways, defence and power sectors. One would hardly come across an investor who does not own shares inthese companies. This in case of selling pressure gets accentuated as everyone wants to do the samething at the same time and precipitates the fall.

Markets have survived a crisis on Monday after the sharp fall. While lows made at 76,249.72 points on BSE Sensex and at 23,047.25 points on Nifty would act as support in the short term, they wouldgive way if FPI selling continues unabated. Job data in the US is very strong and rate cut which was expected early in the calendar year may not happen as expected. Further the three rate cuts expected last year also are unlikely to happen. Donald Trump would be sworn is an US President on the coming Monday and it would be interesting to see what announcements he makes on the trade front. One thing is for sure, any duties imposed on imports will make goods expensive for the US citizen.

With markets at crossroads, FPI selling continuing unabated, Union budget less than 12 trading days away, results season just started, markets will be very interesting going forward. Expect strong resistance at levels of 23,700-23,800 points which in the current scenario is like Mount Everest. Onsupport it exists at the lows made earlier during this week on Monday. God forbid, if these lows arebroken, we could see another sell-off which could take markets 300-400 points on Nifty and 1,000-1,200 points on BSE Sensex lower. The strategy for the period ahead would be to shift to large capstocks and avoid midcap and small cap stocks as they do not give a feeling of comfort or safety. While bottom fishing should be avoided, deep cuts in the market could be opportunities to buy. Trade cautiously.

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