Consolidation more likely this week

• Mkts up in all 5 sessions during Nov30-Dec 6
• Sensex, Nifty gained over 4%
• 5 main board IPOs listed
• 3 made robust debut listing

The period November 30-December 6 under review was more than eventful. It had enough action which would normally be witnessed in more than a month. It began with November futures expiring on the very first day, November 30. Then on Friday we saw markets reacting to exit polls of five States where elections were held and where pollsters came up with all the possible combinations and permutations that one could think off. Thank God for the results being declared on a Sunday as markets did not have to swing with the outcome. The results beat all pollsters and left them high and dry and with people doubting on their abilities to predict outcomes. What ensued on Monday was a strong rally, which continues till the last day of the period under review and saw markets record a stunning performance. BSE Sensex gained on all five sessions of the period under review. BSE Sensex gained a massive 2,751.82 points or 4.11 per cent to close at 69,653.73 points, while Nifty gained 841.10 points or 4.19 per cent to close at 20,937.70 points.

Dow Jones too had a decent performance and gained on three of the five trading sessions and lost on two. It gained 707.58 points or two per cent to close at 36,124.56 points. Dow has in the last two to three weeks been gaining and is now up 8.98 per cent for the year on a year-to-date basis.

Coming to our markets, expiry was on a positive but quiet note. The series gain was a big 1,275.90 points or 6.77 per cent at 20,133.15 points. The first day of trading in the new series saw Nifty gaining a further 134 points.

The period under review was also the period when five main board IPOs listed. It all began with IREDA on Wednesday followed by three on Thursday and ended with Flair on Friday. The performance of three of the five issues saw huge gains being registered with FedFina struggling around the issue price. The fifth share Flair seems to be having a mind of its own. The discovered price was Rs503 and the closing price was Rs452.70, a gain of Rs148.70 or 48.91 per cent. Incidentally, the share closed day one at the lower circuit of 10 per cent after a strong showing. Why such a poor performance is something which needs to be looked into. Further the lower circuit happened within five minutes of trading post price discovery.

Things did not end here. Monday too saw the share hitting the lower circuit of 10 per cent. It was weak on Tuesday as well and was struggling on Wednesday as well. The share closed the period under review at Rs382.65, a loss of Rs70.05 from the first day’s closing price. Yet another way of looking at it is that the share is now up Rs78 or 25.65 per cent from the issue price of Rs304. Incidentally on listing day the share was up close to 70 per cent at the day’s high.

The listing week euphoria will subside and all the five listings have lost ground from listing day. The share values will find realistic levels sooner than later. Incidentally the institutional support which new listings normally find is also currently missing in these five listings.

Coming to the markets post the election results where the ruling party at the centre has swept the three Hindu heartland states of Rajasthan, Madhya Pradesh and Chhattisgarh. The grand old lady of Indian politics has won the state of Telangana where they defeated the incumbent BRS, the creator of the state. Markets have given a thumbs up to the victory and it appears that this would put the party in pole position for a record third term at the centre.

With this expectation, it opens up the possibility of markets moving into a new orbit and a sustained bull run for the next six months leading into the election and their results thereafter. This does not suggest at any point of time, that the rally would be one sided or unidirectional. There would be corrections, many of them sharp and different stocks moving at different times in different directions. The fact that FPIs were negative on the Indian stock markets and were sellers over the last few months, will be another positive for our markets. Take for example their net purchases on Tuesday in the cash market were at Rs5,222 crore even while domestic institutions sold shares worth Rs1,400 crore. In the first three days of December 23 their net purchases are at Rs8,900 crore, while net purchases in the whole of November were at Rs5,800 crore.

I believe the rally that would play out over the next six months would be all about India and India. Domestic manufacturing, make in India, consumption, infrastructure growth and making the country better equipped to tackle its issues of growth and aspirations. It’ll also enable the country to face the competition from the world. While our markets on a valuation perspective are certainly not cheap, it’s time to differentiate between the men and the boys. Stock selection will be important and one will have to be patient in the quest to make money.

The easy part which was the momentum is over and now would be the grind. Different stocks are moving at different times. If I were to hazard a guess which maybe too early, expect about 8-12 per cent returns over the next six months from hereon.

The strategy for the week would be to expect some consolidation after sharp gains during the last four to five sessions. On the downside, in a worst-case scenario expect a higher bottom compared to the breakout from the previous top made on September 15. As we are in fresh territory there are no immediate resistances and we have already touched the three per cent level from the September top. Expect consolidation in the period December 7-13. We also have a spate of new IPOs coming up in the week 11th December to 15th December. Trade cautiously.

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