Brace for sharp fall as deep correction more likely

Next level of support would be closer to 17,000-17,050 on Nifty and 57,900-58,050 on BSE Sensex. This should hold good for the week. However, this were to break or give away as well, we could see a sharp sell-off

The period February 23-March 1 under review saw markets under pressure. The saving grace was that the eight-day losing streak was finally broken on the last day of the review period on Wednesday, when markets staged a strong comeback. BSE Sensex lost 568.92 points or 0.95 per cent to close at 59,411.08 points, while Nifty lost 154.90 points or 0.88 per cent to close at 17,450.10 points. Markets had a very strong possibility of reversing today for at least one day at the bare minimum, as the fall was already eight days old. Eight is a Fibonacci number and the next one after this is 13. Probably the markets did not have the capacity to fall for another five days consecutively. This reversal need not necessarily have strong legs and may reverse once again after a day or couple of days. One may treat it as a technical bounce, dead cat bounce or by any other name that one so desires.

Dow Jones lost on three of the five trading sessions. It lost 475.89 points or 1.44 per cent to close at 32,653.70 points. The biggest concern that US markets are having is about interest rates. The street now believes that the next rate hike would be of 50 basis points, followed by two or three of 25 basis points and then at best a pause from rate hikes for the remainder of the year. This means that interest rates which currently are in the range of 4.5-4.75 per cent would midway during the year be in the range of 5.5 -5.75 per cent. Really high, considering US rates were at zero less than 12 months ago. This would have a telling impact on the cost of living for the common American citizen.

The impact of US markets would be felt globally and if American markets are soft, Indian markets would also face the brunt, while the extent may vary. Suffice to say that the calendar year 2023 would be a tough one for markets. While markets in India managed to make a small gain for the year 2022 against a fall in US markets over the same period, this year may be different. The valuations of India which were rich have been corrected and could be said to be just about rich or marginally expensive. However, the outflow of money from India seems to be continuing unabated. FPIs have been aggressive sellers. Demand from the consumption sector seems to have slowed and it seems quite odd that companies involved with inner wear, paints and even pizzas have seen a slowdown in the third quarter. There has been a definite slowdown across these sectors. This is the starting point and the same could extend to a much larger base. This is also borne out by the fact that GDP has grown at a weaker than expected 4.4 per cent in the December quarter of FY23. While this is better than almost all other countries, it is still a setback and would make markets think.

After a hiatus of just about a month, we have an IPO in the current week. Divgi Torqtransfer Systems Limited is tapping the capital markets with its primary issue for Rs180 crore and an offer for sale of 39,34,243 equity shares. The company as the name suggests is into the business of supplying transfer case systems, torque coupler and DCT solutions for passenger vehicle manufacturers in India. The company is also in the process of designing and developing prototypes of transmission systems for EVs. The company has received an order for supply of the same from a leading provider of EVs in India.

The top five customers account for between 88-92 per cent of the companies’ revenues. The revenues for the year ended March 22 were Rs241.87 crore, while its net profit was Rs46.26 crore. It reported an EPS of Rs16.76. For the six-month period ended September 22, the company reported revenues of Rs137.54 crore and a net profit of Rs25.41crore. The EPS for the six months was Rs9.32. For comparison’s sake if one were to annualise the same, the EPS has increased from Rs16.76 to Rs18.64, a growth of 11.12 per cent.

The price band of the issue is Rs560-590. The issue opens on Wednesday (March 1) and closes on Friday (March 3). The PE band for the issue is between 33.41- 35.20. Being a niche company and in a highly skilled activity, one may feel that the issue is richly valued. The positive is the reasonable size, high margins considering it’s in the automobile segment and its pricing power with OEMs. Further the new facility coming up at Pune would begin with the assembly line for EVs of its products in the first quarter of FY24. The issue may be considered expensive, but a niche company meriting attention on listing, if available cheaper.

Sebi has issued orders in the AXIS Mutual Fund front running case against as many as 21 entities who have been barred from accessing capital markets. Wrongful gains of Rs30.5 crore was made by these entities. They have been asked to provide full inventory of their assets. Hopefully now details of the owner of the elusive Lamborghini, which was used by the Axis dealer would become clear.

Shares of Adani group had a decent showing today and their prices were not only up, but almost all of the shares traded freely. A few of them were locked at circuit, but today they were at the upper circuit.

Coming to the March 2-8 period, we have a holiday on account of Holi, where the date has some confusion. The Maharashtra government has notified the holiday on March 7, while the Central government has notified it on March 8. Representation has been made for clarity and uniformity, but not sure what the outcome would be. Markets would remain choppy and volatile. The budget day low made on 1st February of 58,816.64 points on BSE Sensex and 17,353.40 points on Nifty are under threat. They were violated on Tuesday and markets recovered from levels below this low.

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