Markets on a roll; Adani case holds the skeptical view

Markets were on a roll in the period 10th June to 16th June and gained on the first four trading days of the period and ended the same with losses on Wednesday. The net gains were 560.34 points or 1.07 per cent on the BSE SENSEX which closed at 52,501.98 points. Nifty gained 132.20 points or 0.84 per cent to close at 15,767.55 points.

BSE SENSEX achieved its lifetime intraday high on Friday and with this the immediate target of the index was completed. Readers would recall that Nifty had hit a new lifetime high on the 28th of May when June futures had begun. This gap of two weeks is normally not seen when such landmarks are created.

Shares of the Adani group have been under pressure since trading began on Monday, ever after news item about three FII's who hold a very large investment in Adani group companies demat accounts were frozen. While clarification did emerge, the fear that was visible on this news still continues to haunt the market. Other than Adani Ports which is part of the futures and is also part of Nifty-50, the other stocks of the group closed with sizeable losses. Adani Ports too lost 7.86 per cent to close at Rs 702 on NSE. The share had closed for trading at Rs 839.75 last Friday. The low on Monday was Rs 681.10 on Monday and this would act as a crucial support in the coming days.

The Adani group companies' affair and the way it was presented in media leads to lot of questions. One hopes SEBI the regulator lays down norms for such things, as going forward having seen what a piece of twisted news can do to the market, there may be many more brave hearts who may try such things. Investors were the one single class of people who have borne the brunt of damage and carnage as a result of this incident.

The IPO market has suddenly become very vibrant with there being four back-to-back issues. Two issues from Shyam Metalics and Energy Limited and Sona BLW Precision Forgings Limited, opened on Monday and closed on Wednesday. They were subscribed 120.93 times and 2.28 times respectively. Two more issues have opened on Wednesday and would close on Friday. They are Dodla Dairy Limited and Krishna Institute of Medical Sciences Limited. These issues at the end of the first day were subscribed 1.4 times and 0.26 times respectively.

The buoyancy in the secondary markets is helping the primary markets and the number of issues hitting the markets is increasing significantly. More importantly we have a very strong pipeline of issues and the period from July to Diwali should see large number of issues hitting the market. The biggest concern in the primary market is valuations and, in the past, it has been observed that a couple of bad issues and the pipeline gets badly hit. One hopes promoters and merchant bankers keep this in mind when fixing the valuations for their issues. The market breadth seems to just keep on expanding and stocks which have not moved in months or even years do so all of a sudden. They remain active with a huge increase in traded volume, manage to remain super active and volatile for three to five days and then tend to get lost and forgotten all over again. Its very important in the market to be wary of such, stocks as once trapped in such stocks the wait period could be painfully long at a few years minimum.

Markets are trying to create a euphoria post having recorded new highs. How far they succeed would be known in the next couple of weeks. Post this euphoria we would enter a consolidation phase which could see markets correcting significantly in terms of value and time. The recent example would be remembered by all where we made tops in mid-February and then lost about 10-11 per cent from there in the next two and a half months and are back at slightly higher levels. All of this correction and recovery took four months.

Prepare for the worst and be very careful in selecting stocks from the Smallcap and midcap categories. Stick to large cap where you have comfort of size and liquidity. Use this mood and euphoria to sell stocks where you may have been caught over the last few years. Market still has time to move but in a choppy manner.

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