Correction overdue in current overheated mkt

Markets were on a roll and the BSE Sensex hit a key level of 75,000. This marks the trebling of the indices from 25k when the present Modi government began ruling India roughly 10 years ago. The period April 4-10 under review saw markets build and make new highs regularly. The event of new highs happens so often that it has virtually lost relevance. BSE Sensex gained on three of the five sessions and lost on one. The fifth session was flat with BSE Sensex marginally up and Nifty down by a solitary point. BSE Sensex gained 1,161.35 points or 1.57per cent to close at 75,038.15 points, while Nifty gained 319.20 points or 1.42 per cent to close at 72,753.80 points.

Doe Jones lost on four of the five trading sessions and gained on just one. Dow lost 286.57 points or 0.73 per cent to close at 38,883.67 points. The US markets are worried about the Fed not cutting interest rates in the immediate short term. With employment data and the economic indicators pointing to a roaring economy, one wonders whether a cut would be appropriate at all. Further the concern about high inflation seems to have taken a back seat and the Central Bank is not too sure about the impact that a rate cut could do to contain inflation. This probably explains why the markets fell sharply and now seem to be consolidating at this stage.

Primary markets on the main board seem to be in a short-term hibernation with no issues planned for the coming week so far. One is not sure as to what the wait is all about as things could not be better than what they are as far as markets are concerned. New highs, buoyant and excellent flows in domestic funds and FPIs actively participating in QIPs and OFS offerings.

There was a news item in the press that, based on research reports of brokerages, the Q4 results for FY24 would see the slowest growth in profits when compared over the last six quarters. While the news is certainly not one which would be expected when markets are at lifetime highs, it needs to be tracked carefully in the coming weeks. If it does happen to be true, suddenly one would hear comments about markets being very expensive and being more than richly valued.

The period April 11-17 ahead would begin with a trading holiday on Thursday (April 11), and also end one day earlier with Wednesday (Shri Ram Navami on April 17) being a holiday. This would mean that the period under review would consist of a mere three trading sessions, making the period extra volatile and choppy. Such a truncated period could also bring about a correction which is more than overdue in the current overheated market. Whether it happens or not would be keenly watched.

Markets have made a new high and the upsides have opened new targets of 23,400-23,450 on Nifty and 77,200-77,300 points on BSE Sensex. While these are potential targets there is no certainty that this would happen or by when they would happen. On the downside, strong support exists at around 21,900 points on Nifty and around 73,000 levels on BSE Sensex. The trading strategy would be to sell on strong rallies and buy on sharp dips. With just three trading sessions available in the next seven calendar days, there would be a lot of uncertainty which would keep markets tentative and volatile. It therefore makes sense to trade large caps and a select group of mid-cap and small-cap stocks.

Results season would kick in with TCS announcing results on Friday (April 12). Keep your eyes glued to them as the IT sector has been all over the place in the last few quarters and there is expectation that things would be better going forward. Trade cautiously.

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