Markets at new highs, Sensex almost at 50k
Over the last three days the advance decline ratio has been negative. This is an advance indicator of an impending correction
image for illustrative purpose
Markets during the last five trading days continued to gain momentum and registered sharp gains overall. These gains were not without hiccups and sharp rallies as well. Thursday was a negative day while Friday and Monday registered super gains. Tuesday was a mixed day which saw markets losing ground intraday and then registering small gains. Wednesday saw the markets open strong and then surrender the gains and finally close almost flat. Wednesday saw the c close at 49,492.32 points, a gain of 1,318.26 points or 2.73 per cent over the five trading sessions. NIFTY closed at 14,564.85 points, a gain of 418.60 points or 2.73 per cent. During Wednesday or today's trading markets were down almost 0.9 per cent intraday.
It has been observed that different stocks are moving at different times and hence give a sense that markets are stronger than they appear. Reliance rose 3 per cent on Tuesday and contributed almost two-thirds of the total gains of the BSE Sensex on that day. Similarly, Bharti Airtel on the back of seeking permission for 100 per cent foreign investment being permitted, has been doing well. The gainers on the BSE Sensex were State Bank, Infosys and ICICI Bank which contributed 50 points each to the BSE Sensex while HDFC lost 125 points. There is an interesting fact that cannot be ignored.
Over the last three days the advance decline ratio has been negative. This indicates that the number of stocks rising are less than those stocks which are declining. This is an advance indicator of an impending correction.
The week ahead sees two IPOs tapping the capital markets. The first issue is from Indian Railway Finance Corporation, which raises funds for the Indian Railways and leases them rolling stock which includes coaches wagons and locomotives.
The issue consists of a fresh issue of 118.80 cr shares and an offer for sale of 59.40 cr shares in a price band of Rs 25-26. The issue opens on Monday the 18th of January and closes on Wednesday the 20th of January.
The second issue is from Indigo Paints Limited which is tapping the capital markets with its fresh issue for Rs 300 crore and an offer for sale of 58.40 lakh shares. The price band is yet to be announced but should be in the range of Rs 1,450-1,500. The issue opens on Wednesday the 20th of January and closes on Friday the 22nd of January. The markets appear to be in a state of disbelief as far as valuations and rationale go. Stocks seem to be running wild and simply shoot through the roof on huge unheard volumes. While momentum is simply amazing and shocking, it's also time to be cautious, as these are the cautionary signals one gets before the markets peak.
For the records, in two of the last three years we saw markets peaking in January. This happened in 2018 and 2020. In 2020 the peak of January was crossed 10 months later in November.
Further the Union Budget would be presented on the 1st of February. The government does not have the comfort of doling out any freebies this time around simply because in the current year the collections have been very poor on account of the pandemic.
Notwithstanding the fact that GST in December 2020 was at Rs 1.15 lakh crore, it still leaves a lot of ground to be covered. What can be expected at best is incentives for higher production across sectors. Manufacturing and consumption would be encouraged and also incentivised. You manufacture, you benefit. You sell, you benefit.
The government would incentivise production and consumption to kickstart the economy. Not sure how much of this would be liked or not liked by the market. One may also expect some sort of Covid-19 cess. Any levy or cess is bad news in the market and currently the best performer in the economy is the stock market which has almost doubled from the low of March 2020 at 25,600 points to a high of 49,800 points in under 10 months.
Even at the point of being disliked and hated, would advise some profit taking and trying to improve the portfolio quality. This simply means sell your weakest holding first.
(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)
