FII offloading a cause of concern

The period (February 3-9) under review saw markets correcting themselves for the first three days and then recovering on Tuesday and gaining sharply on Wednesday. The net effect was that BSE Sensex lost 1,092.36 points or 1.87 per cent to close at 58,465.97 points, while Nifty lost 316.20 points or 1.81 per cent, to close at 17,463.80 points. Dow Jones closed marginally higher by 0.16 per cent or roughly 50 points during the five days.

What is significant is that the markets began correcting from key resistances. There is every possibility that we go back to the previous levels from where we corrected in the next 5-7 days before correcting again. Markets seem to be in a broad trading zone and are moving swiftly in either direction in the same zone. This zone could be spelled out as 56,800-60,000 for BSE Sensex and 16,900-17,900 for Nifty.

RBI will declare their policy post their bi-monthly meeting on Thursday morning. While key interest rates are expected to remain unchanged there could be some changes in Repo rates. This would signal that the status quo rate regime would be coming to an end and there could be rate hikes as has started happening globally.

In primary market news there was one listing and one issue which closed for subscription. Both events happened on Tuesday. The listing from Adani Wilmar Limited saw a discovered price of Rs227 on NSE and Rs221 on BSE against the allotment price of Rs230. Many hearts may have skipped a beat or two looking at these rates. The share recovered non-stop over the next five and a half hours and closed at the upper circuit of Rs265.20 on BSE and Rs268.25 on NSE. In the process, BSE saw gains of Rs35.20 or 15.30 per cent, while NSE saw a gain of Rs38.25 or 16.63 per cent.

On Wednesday, one saw the shares of Adani Wilmar Ltd open higher and close at the upper circuit of the day, 20 per cent higher. The closing prices were Rs318.20 on BSE and Rs321.90 on NSE. Shares have now gained Rs88.20 or 38.35 per cent on BSE and Rs91.90 or 39.95 per cent on NSE. Incidentally the company will be declaring results on February 14 for the quarter ended December 2021. What the week ahead has in store is difficult to comprehend.

The issue from Vedant Fashions Limited, which consisted of an offer for sale of 3,63,64,838 shares in a price band of Rs 824-866 was subscribed 2.55 times. The QIB portion was subscribed 7.49 times, HNI portion just about subscribed 1.07 times and Retail portion under subscribed 0.36 times. There were 2.52 lakh applications. The company was unable to explain its business and category to the masses and it affected its subscription. The other issue was valuations were very steep. It would be interesting to see how the company fares on listing. Readers would recall that while reviewing this issue last week, I had asked investors to take a measured call on the issue and to look at the same when it lists.

The DRHP from LIC of India Ltd is expected to be filed on Thursday. The embedded value is the sum of the present value of the insurer's future profits and its net worth. This is around Rs 5.3 lakh crore as per results declared by LIC some time ago. Typically, such companies are valued at a multiple of the embedded value. On a conservative basis this could be anywhere around two times to three times or higher for LIC. If overseas investors like the issue and bid for the same aggressively, this valuation could be based instead on a one year forward anticipated embedded value rather than the current value. In comparison, HDFC Life is currently trading at 4.2 to 4.5 times to embedded value. More details when the DRHP is publicly available tomorrow.

Coming to the period February 10-16, markets would remain in the broad range mentioned above. Further they would be volatile and choppy. The fact that FII's have not stopped selling as yet is a cause of concern and is affecting markets in India. The movement in US markets continues to be choppy as well. In such a scenario it makes sense to continue to buy on sharp dips and sell on rallies as markets would remain range bound. Virtually whatever levels they rise or fall to be retested sooner or later. Keeping cash on hand would be a good strategy. Trade cautiously.