Market volatility will continue

The period 6th May to 12th May saw markets remain choppy and volatile. At the end of five days of trading, markets rose on the first three days and lost on the remining two, to end flat. BSE SENSEX gained 13.25 points or 0.03 per cent to close at 48,690.80 points while NIFTY gained 78.64 points or 0.54 per cent to close at 14,696.50 points. It is important to note that markets have been moving to external factors which include Covid-19, global markets and also individual results.

FPI's have been largely sellers in this period and domestic institutions have been buying and selling in a mixed manner. Markets seem to be moving in two different parts. One is the benchmark indices with the weightage dependent on the large five to six stocks, where there seems to be a bearish stance taken by institutional players. The second part is the broader markets and also the benchmark indices where the action is positive and they have been gaining ground. In the same period, Dow Jones has also closed flat after hitting a new life-time high of 35,092. Dow had closed the period at 34,271 points, while at the end of the previous period it was 34,230 points. It's a gain of 862 points and then a loss of 821 points.

The Covid-19 2nd wave was led by Mumbai and Maharashtra and then followed by many other parts of the country. Data shows, that the wave seems to have plateaued in Mumbai and new cases and deaths have come down significantly. This is not necessarily true of the whole of India. The State administration is contemplating extending the current State of semi-lockdown till the end of the month and would announce its decision soon. As a people, we need to follow guidelines of social distancing and wearing masks strictly at all times. Any extension would be bad news for the markets.

The midcap and smallcap space have been witnessing huge turnover at the bourses. A large part of this increase could be justified and is also the usual 'pump and dump' in operation where market players take the stock up, create huge volumes, sell and then exit, allowing the price to settle back to realistic levels.

Currently, many of the sectors that have been in the limelight include the metal and commodities space, sugar stocks, fertilisers, PSU stocks as a stable and many more. Its time to be wary in the markets and look at fundamentals before investing. Getting into the wrong stock can be damaging and cause huge losses.

The Small finance bank is giving indications of trouble brewing in the space. RBI governor has already sounded caution and results from Bandhan Bank last Saturday further add confirmation. Results from Bandhan Bank were disappointing on two fronts. Firstly, their housing loan book saw huge provisions and their micro-finance book continues to be under pressure. The bank saw its profits for the final quarter drop a massive 80 per cent at Rs 103 crore against Rs 517 crore in the similar quarter a year ago. The bank has almost doubled its provisions to Rs 1,594 crore against 827 crore in the year ago period. This result should be an eye opener to many more in a similar line of activity going forward. With the sharp increase in Covid-19 cases, there is a need to preserve cash amongst the lower levels of the social pyramid and this is even at the cost of lowering of CIBIL scores. Borrowers believe that the pandemic could hit just about everyone and the need would be cash. This is likely to have an impact more on the results which come for quarter one of FY22 and onwards. This space needs to be watched in the markets carefully. Markets have a trading holiday on Thursday the 13th of May and therefore the period ending on 19th May would consist of four trading sessions. Markets would continue to remain volatile and the flip flop being witnessed, where they gain on one day and then lose on the second, would be the order of the day. It makes sense to use these swings to buy on dips and sell on rallies and make money. Be cautious about the quality of stocks you choose. Markets are going to remain in the trading zone in the immediate near term.