Caution alert to investors amid uncertainty

It was a tough period April 11-17 under review. The domestic markets were open for just three days and they lost on all three. Thank God, for the fact that we had two days of holidays, otherwise the position at the end of the period could have been even scarier. The period began on Friday (April 12) when we saw FPIs being big sellers. The Mauritius double tax treaty has seen a change being introduced where the PPT (principal purpose test) has been made a key for the purpose of lower tax being applicable or not. While the ramifications are yet to be known, on the very first day itself there was large selling by FPIs who sold shares worth Rs8,000 crore on a net basis. Details of the policy have begun to trickle in on Friday. This could act as a dampener for the markets going forward in the immediate short to medium term.

On the week end, we saw tension in the Middle-East rising many notches with Iran attacking Israel with suicide drones and all kinds of missiles. A special emergency session of the UN Security council was held on Sunday morning US time to diffuse the situation. At the session, Iran said that as far as they are concerned, the matter is over as they have taken action on Israel for attacking their embassy and killing some key people in Syria. This spooked the markets on Monday and the impact was felt globally. Tuesday the carnage continued, though on a reduced scale.

TCS has declared results for the 4th quarter and year ended March 24 on Friday (April 12). There is improvement and order flows have certainly improved. Looking at the large size of TCS, one can’t take this as indicative of the entire IT space and one certainly needs to know how the mid-tier and small IT companies would fare. One would have to wait for results from some more companies before coming to a decision. While no results from the IT space were declared, the optimism seen on Monday had vanished by Tuesday. BSE Sensex in three trading sessions lost 1,956.36 points or 2.61 per cent to close at 72,943.68 points, while Nifty lost 562.30 points or 2.48 per cent to close at 22,147.70 points. Markets are under pressure without doubt and the current correction and consolidation phase has more to be done.

It would be a good time to see how this rally has progressed over the last 4-5 months. Our markets began their upward journey with expectation of results for the five State Assemblies which were to be declared in the first week of December 23. Subsequently, on Friday (November 24, 2023), BSE Sensex at 65,970.04 points and Nifty at 19,794.70 points. At the end of the next week on December 1, they had moved to 67,481.19 points and 20,267.90 points, respectively. Exit polls were announced post market closing on Friday (December 1) and results were declared on Sunday (December 3). In the week ended Friday (December 8), markets had moved to 69,825.60 points and 20,969.40 points respectively. Gains in the two-week period were 3,855.56 points or 5.84 per cent in BSE Sensex and at 1,174.70 points or 5.93 per cent on Nifty. Since then, we have moved up much further, discounting the outcome of the general elections and gained another 6.3 per cent on BSE Sensex and 7.39 per cent on Nifty. Call it by any name, markets need a correction as there is virtually no space for further upside right away. And they obliged in a ferocious manner losing on all three trading sessions.

In primary market news, shares of Bharti Hexacom Ltd, who had issued shares at Rs570, listed on Friday (April 12). Shares ended day one with a fantastic appreciation and closed at Rs813.75, a gain of Rs243.75 or 42.76 per cent. By Tuesday (April 16), shares rose sharply to close at Rs904.80, a gain of Rs334.80 or 58.73 per cent. The issue was an OFS of 15 per cent of the equity capital which was offered by the Government of India. The remaining 15 per cent of the equity or 7.5 crore shares are locked in for six months from the date of listing. One could be sure that looking at the share performance, the government would look to sell these shares when the opportunity arose.

In what could be termed as sheer coincidence, yet another telecom company in which the government of India is a significant stakeholder, is tapping the capital markets with its follow on offer. The issue is from Vodafone Idea Limited, for Rs18,000 crore in a price band of Rs10-11. The issue would open on Thursday (April 18) and close on Monday (April 22).

The share price on BSE closed at Rs12.92. The top end of the band offers an arbitrage of Rs1.92 or 17.45 per cent. The company has over the last few years not spent on capex, and with this fund infusion would do expenditure on strengthening the network. What is interesting to note is that they have been able to add new subscribers and now with capex happening and high gross margins, the standing of the company would improve significantly. One other point to be noted is that the government is very keen to see that this company continues to survive and the situation where a critical resource like telecommunication does not become a duopoly. Investment is warranted and many an investor would hope that the identical price band brings about fortunes like Yes Bank did after its FPO.

The current global scenario, US Fed and expectations of interest rates being cut being dashed, geopolitical news being disturbed with first Ukraine-Russia, then Israel and Gaza and now Israel and Iran with the Houthis thrown in as bonus, is keeping the pot boiling. Crude is once again threatening to move towards the three-digit mark with gold having made a new high. All of this points to uncertain times and the fact that global markets cannot make new highs in such times. We need stability and a period of consolidation. In such a scenario one needs to be cautious and circumspect.

Coming to the markets, expect them to remain volatile and under pressure. The period April 18-25 ahead would see trading on all five sessions. Trading would be volatile and choppy. The focus should be on large-cap and select mid-cap stocks. There is no need to push the pedal in buying. Trading and buying opportunities would be available. In terms of resistances, the highs made on Tuesday (April 9) at 75,124 and 22,775 points on Nifty, would act as strong resistance. Similarly, the previous lows made at 21,900 points and around 72,000 points would act as strong supports. The emerging scenario going forward could be one where the top is established and we make lower lows and lower tops going forward. Trade cautiously.

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