High volatility grips markets

The period (February 9-16) was full of action and saw markets move in all directions. It finally ended with losses with BSE Sensex losing 469.29 points or 0.81 per cent to close at 57,996.68 points, while Nifty lost 141.60 points or 0.82 per cent to close at 17,322.20 points. Markets gained on two of the five trading days while losing on the remaining three. Monday saw markets lose over 2.5 per cent and regain that entire plus a little more on Tuesday. This kind of volatility has not been witnessed in a long time. This points to the high risk that markets are witnessing and such markets normally end on the losing side.

The factors affecting the markets currently are the war mongering which is going on coupled with oil prices at a multi-year high almost touching the three-digit mark. Coupled with this are the inflation levels being experienced in USA, which is leading to extreme volatility in their markets and hence affecting markets globally. In the five days, Dow Jones lost on three of the five days and gained on two. In the process, it lost 470 points or 1.34%.

In our markets, the sharp fall on Monday followed by the equally sharp and strong rally on Tuesday has made resistances and supports void in the short and medium term. The next level of support for the markets are the lows made on 20th of December at 55,132 on BSE SENSEX and 16,410 on NIFTY. While currently, these levels look quite far, we cannot overlook what happened earlier this week when over 1600 points on BSE SENSEX and over 500 points on NIFTY was the single day loss. While I am not suggesting that something similar will happen again, we need to protect ourselves and safeguard as well.

New age companies or better known as the platform-based companies have been at the receiving end. They have all been under pressure and have lost significant ground in recent weeks. Paytm has made a high low of Rs 1,955 – 840 against an issue price of Rs 2,150. The share closed at Rs 861.35. Zomato went below its issue price of Rs 76. The high low has been Rs 169-75.75. The share closed at Rs 84.95. Policy Bazaar had issued shares at Rs 980. The high low was Rs 1,470-725.25. The scrip closed at Rs 775.70. And finally, Nykaa or FSN-E Commerce Ventures Limited, who had issued shares at Rs 1,125 saw its shares make a high and low of Rs 2,573.70 -1,455.10. The share closed at Rs 1,503.90.

The fall in these new-age companies is startling and has taken the markets back many notches. This would affect many more companies waiting to tap the markets which are currently loss making and have a business which involves a combination of online and offline or are online companies standalone. There hefty valuations will remain a thing of the past.

In primary market news, the mega issue from LIC has been filed. There will be reservations for policy holders and employees and there is a provision of a discount for them as well. The size of the issue in terms of shares will see the retail portion have 9.4 cr shares. The domination of LIC on the industry front continues even though private insurers have been allowed now for over 21 years. In the last fiscal, LIC issued 21 million new individual policies and had a 75% market share. The second largest with a market share of 5.9% issued 1.66 million policies.

The embedded value of LIC is 5.4 lac crs. Assuming a price to embedded value of 2.5-3 times, the range for LIC value would be between Rs 13.4 crs to 16.2 crs. Midway to this band, a price for the proposed IPO being talked is in the region of Rs 2,350. With just 5% of the company to be sold, expect the government to offer the price to investors to be attractive so as to make this issue super attractive. The price could be around Rs 2,000 -2,100. Even at the issue price of Rs 2,000, the size of the issue would be Rs 63,000 crs.

In other primary market news, the issue from Vedant Fashions Limited listed on Wednesday. The company had allotted shares at the top end of the price band of Rs 866. The discovered price was Rs 936 and the closing price was Rs 933.55, a gain of Rs 67.55 or 7.80%. The high low for the day was Rs 993 and Rs 921. While the share closed with gains it was under pressure as it was unable to hold on to the gains it notched intraday.

There are no primary issues expected to open in the immediate future and all action seems to be focussed on the mother of all issues, LIC. Its fighting a tall order of meeting deadlines and completing the issue in a manner where it would have listed well before the financial year is over. No other company waiting to tap the markets would like to come in the path of this giant.

Coming to the markets in the period 17th February to 23rd February, expect them to be volatile and choppy. The wild swings witnessed on two days may not be there but they would remain choppy. Markets seem to have entered a weak phase. They need to consolidate and build a base before they can get out of the present setup. February futures would expire on Thursday the 24th and it would be one day after the period under review expires. However, markets would by then have got into a decisive trend for expiry.

Considering the volatile nature of the markets, trade cautiously. Use rallies to sell and look to enter or buy stocks only where there are really deep cuts or falls. Be greedy in buying stocks.

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