Markets To Remain Extremely Choppy, Volatile

The January 16-22 period under review continued to remain super volatile and choppy. The domestic stock markets rose and fell on alternate days. They were up on three trading sessions and lost on two. However, the sharp fall on Tuesday ensured that they closed in negative territory for the periodunder review. BSE Sensex lost 319.09 points or 0.42 per cent to close at 76,404.99 points, while NSE Nifty lost 57.85 points or 0.25 per cent to close at 23,155.35 points. On Tuesday, the markets made a new low andtouched 22,976.85 points on Nifty and 75,641.87 points on BSE Sensex. This has given a negativetwist to the markets currently and they are likely to remain under pressure in the coming days andweeks.

Donald Trump was sworn in as the President of the United States of America on Monday (January 20). The day was a trading holiday not because of the swearing in, but because it happens to be Martin Luther King day and is observed as a federal holiday. Dow Jones had a great period andgained a massive 1,507.53 points or 3.55 per cent to close at 44,025.81 points. Dow gained on three of thefour trading sessions and lost on one. While a hundred executive orders have been signed by the US President on his opening day in office, nothing has been announced on tariffs as yet. Trump has said that the first round of tariffs wouldcome on Mexico, Canada and China. It is also expected that the tariff on China may be 10 per cent. One will have to wait to see when the details come out by 1stof February latest.

The Union Budget would be presented on Saturday (February 1), which means there are amere seven trading sessions left before the same. Currently the mood in the market is negative and stocks are trading with a negative mind-set. There is expectation of a cut in income tax rates in theensuing budget. While the same happening or not is speculative, there is a strong case for the sameas tax compliance has greatly improved and if incentives are given, they would improve further. Secondly, there is need to encourage consumption and what better way than giving more money inthe hands of the middle class.

The issue from Denta Water and Infra Solutions Limited opened on Wednesday (January 22). The issue is entirely a fresh issue of 75 lakh shares in a price band of Rs279-294. The issue would close on Friday (January 24). At the end of the first day of subscription, the issue is oversubscribed 17.05 times with QIB portionsubscribed 1.67 times, HNI portion subscribed 36.21 times and Retail portion subscribed 17.63times.

The company is in the business of water and infrastructure solutions. It is engaged in design, installation and commissioning of water management infrastructure projects with expertise inground water recharging projects. We are all aware that water is the key resource for whichcountries are likely to fight going forward. The company is predominantly present in Karnataka andhas an unexecuted order book of Rs752.45 crore, which is over three times the revenues clocked in FY24 of Rs238.59 crore. The company enjoys a healthy net margin of 25.03 per cent.

The company declared an EPS of Rs31.11 for the year ended March 24 and based on this EPS, the PEband is 8.97-9.45 which is very favourable when compared with its competitors. In terms of price tobook, the NAV of the company as on September 30 is at Rs98.15, which translates to a healthyprice to book of 3.44 times. This is very favorable when compared to peers. On the risk front, there is a case which was investigated by the Lokayukta of Karnataka against apromoter of the company when he was Secretary of the state PWD. The same proceedings were disposed of and the concerned promoter mean, while has also retired from the services of the publicoffice.

There is a very healthy grey market premium, which is available for the share and the last heardpremium was a healthy 50 per cent of the issue price. Investment is warranted in the share as it offers scope for appreciation in the medium to long term. Investors looking at a punt and wanting to flip on opening day as well have healthy prospects.

Coming to the January 23-29 period, the same would end one day before January futures expiry happens on Thursday (January 20). The fact that FPIs have been selling continuously and have sold for the last 25 trading sessions continuously is cause for concern. With budget a mere seven trading sessions away, there is no buzz or expectations about budget in themarket place. While this is good in a way that there would be little disappointment post budget when expectations are belied, it’s actually high time that markets start building up expectations. Markets will remain extremely choppy and volatile in the period ahead.

As far as resistance isconcerned, the first levels are at 23,400-450 points on Nifty and at 77,150-300 on BSE Sensex. If by any chance these get broken then the next levels would be at 23,550-600 and 77,600-750 points respectively. On support side, we are in area of support starting from 23,200 points to 23,000 points downwards. If this level is broken, low made on Tuesday at 22,976.85 points on Nifty and 75,641.87 points on BSE Sensex would act as support. The strategy would be to look at large-cap stocks as comfort in small-cap and mid-cap stocks is not there. There is concerted selling in these stocks and one is seeing renewed pressure on every rise. Conserve cash and wait for yet another bad day. Trade cautiously.

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

an advisory firm)