Go For Large-Cap Stocks Amid High Volatility

It was a short four-day week, during the April 17-23 period, the markets continued their spectacular rise and rose on all the four trading sessions. BSE Sensex gained 3,072.20 points or 3.99 per cent to close at 80,116.49 points, while Nifty gained 892.65 points or 3.81 per cent to close at 24,328.95 points.The rally has been across the board and even the poor results from IT sector have not impacted therally in IT shares.

Dow Jones continues to be on a roller-coaster ride. Dow lost on three of the four trading sessions and gained on one. Gains came on Tuesday and they were handsome at over 1,000 points. Volatility in the US markets is yet to normalise. Dow Jones lost 1,181.98 points or 2.93 per cent to close at 39,186.98 points. President Trump’s comments on Jerome Powell, the Fed Chairman have not gone down well with the markets at all and were reflective of the market during the period.

There have been three sharp moves over the last 31 trading sessions with the first being up followed by down and then up once again. Let me enumerate the same for you. The first was the rally which began on March 4 and terminated on March 25. The BSE Sensex rose 6,108.15 points in 14 trading sessions, while Nifty gained 1,905 points. The correction began from March 25 and lasted till April 7, a period of 8 trading sessions which saw BSE Sensex lose 7,316.68 points and Nifty 2,135.95 points. The third session began from April 7 and is currently ongoing till April 23.

This has taken nine trading sessions and the gains have been 8,825.94 points on BSE Sensex and 2,615.65 points on Nifty. If one were to describe what has happened in these 31 sessions; it’s unprecedented. In my overthree and a half decades in the markets, I do not remember something like this ever happening. A total movement of over 23,300 points on BSE Sensex or a daily average of 752 points per session. On Nifty, the number is 6,645 points or 214 points per day. We are talking of close to 1 per cent movement ona daily basis and this does not include intra-day moves which would add to the same. Are the eventswhich have led to this volatility over? Are things normalized or are they on the way to normalizing? The answer to both the questions is a clear no.

FPIs have changed their stance of selling India in recent times. Over the last five trading sessions they have bought equity worth Rs18,000 crore. This has brought down their net sales during April to Rs16,700 crore. Domestic institutions have sold Rs7,100 crore over the last five days. Their April tally so far cumulatively is positive at Rs20,500 crore. While the short-term trend is positive, one can’t infer the bigger picture. Results season which has begun is yet to see the host of results being declared. Early trends have been mixed with positive results from the banking sector and IT not being positive. Early days and no judgement could be made so far. The incident where terrorists killed tourists in Pahalgam is despicable. It would be a big setback to the residents if the state as a packed tourist season would suddenly see huge cancellations and the local people would have to bear the brunt of fury which would flow. Whether there would be larger ramifications, only time would tell as it coincided with the US Vice-President visiting India, followed by the Indian PM visiting Saudi Arabia.

Finally after two and a half months gap an IPO on the main board, Ather Energy Ltd is tapping the capital markets with its fresh issue and offer for sale issue which would open on Monday (April 28) and closes on Wednesday (April 30). The fresh issue is for Rs2,626 crore and the offer for sale consists of 1,10,51,746 equity shares in a price band of Rs304-321. The company is a manufacturer of EV-2 wheeler and is currently manufacturing the same from its facility in Hosur, Tamil Nadu. The company proposes with the fresh issue proceeds to set up a new unit in Maharashtra. The company reported the losses for the year ended March 24. Hence, there is no PE multiple. The roadshow for the issue is to happen today and the issue would be coveredsubsequently.

Coming to the markets in the April 24-30 period ahead, it would begin with expiry of April series futures expiry of Nifty. The current value of Nifty at 24,328.95 points means that the series gains are a hefty 737 points or 3.12 per cent. With just one day to go, there is no way that the bears can make their way back. At best they can regain some and reduce the lead to some extent.

Resistance at this point is around 24,500-24,600 points on Nifty and at 80,600-80,900 points on BSE Sensex. As the rally has been swift and sharp, support is also at lower levels of 23,500-23,600 points or 77,600-77,900 points. Lower support is at 23,200 points and 76,700 points respectively. The trading strategy would be to look at large-cap stocks and only a select group of mid-cap and Small-cap stocks. Extreme volatility needs to subside and more importantly the fluid situation with results, global markets, trade tariffs and various uncertainties need to balance out before markets normalize.

Considering too many imponderables makes sense to trade cautiously.

(The author is the founder of Kejriwal Research and Investment Services,

an advisory firm)