Risk-reward ratio in favour of bears likely

It was a week of volatility and sharp movements, which one saw during trading during March 17-23 period. It consisted of four trading sessions and markets rose on the first day, fell on the second day, fell sharply and then rose on the third day and did the exact opposite on the fourth day where they rose initially and then fell. At the end of the period, BSE Sensex rose 867.77 points or 1.50 per cent to close at 57,684.42 points while Nifty rose 270.30 points or 1.57 per cent to close at 17,245.65 points.

Dow Jones in the similar period gained 743.9 points or 2.18 per cent to close at 34,807.46 points. Dow gained on four of the five trading sessions.

Coming to the geo-political tensions, the Russia Ukraine war has completed one month today and no immediate settlement or cease fire is round the corner. The situation seems to be tense as though there are many suggestions but none which are implementable are emerging. In US while Fed raised rates on expected lines, the tone of the minutes indicates hawkishness and the possibility that there could be about five rate hikes in the coming 12 months or earlier. Global disruption on account of the war, sharp increase in prices of commodities and concern on production and disruption in the supply chain mechanism across industries is being witnessed. In such a scenario, the fact that markets are already trading higher than levels when war broke out is indeed amazing and quite remarkable. Going forward, for this trend to continue, the risk-reward would not be in favour of bulls, but bears. When things on the Covid-19 front seemed to be under control, we suddenly hear about the 4th wave in many parts of the world and the scene could become frightening as people are getting ready to getting back to normal. If this wave becomes serious, it would take things back several notches even though over the last two years a lot of learning and preparedness is already in place.

In primary market news, the follow-on public offer from Ruchi Soya Industries Limited would be opening on Thursday (March 24) and closing on Monday (March 28). The price band for the Rs4,300 crore issue is Rs615-650. The issue has been very attractively priced and offers scope for appreciation on listing and in the medium to long-term as well. The key take away from the RHP is the announcement from the group that the Patanjali management has taken a conscious decision to bring all food business under the Ruchi Soya brand and management. To this end, the biscuits, breakfast cereals and noodles business was transferred to Ruchi Soya from Patanjali as a slump sale in May-June of 2021 at a cost of Rs60 crores. Going forward the remaining food business would also be transferred on similar lines. This is big news for Ruchi Soya which had revenues of Rs17,500 crores in nine months ended December 2021 and a net profit of Rs572 crores. Finally, its entry into the nutraceuticals business would also be a win-win situation for the company. Coming to the week ahead which begins from March 24 to March 30, would see the last day of trading in the equity markets for the current financial year ending on Tuesday (March 29). There would be NAV propping by many mutual funds in the last three days to improve their performance. All these activities would keep the markets volatile. To mention for the records, March futures would be expiring on the last day of the month, 31st March which would make markets super volatile.

During the week, the high witnessed on BSE Sensex was 58,416, while it was 17,442 on Nifty. The stretched limits on the upside could be another two per cent or 59500-59600 and 17,800 respectively. On the downside the possibilities and levels are much bigger, making the risk-reward against the bull. It makes sense to use rallies to sell and very sharp falls to buy selectively. Buying should only be done in large-cap stocks no matter what is the temptation. There are too many headwinds facing the markets and Russia-Ukraine issue is just one of them, not the only one. Trade cautiously.

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