Stay invested in large-cap stocks, exit mid & small-cap stocks

The period of August 5-11 saw benchmark indices make new highs in the markets accompanied with huge volatility. The markets remained range bound in the period, but saw a significant intraday volatility. BSE Sensex gained 156.18 points or 0.29 per cent to close at 54,525.95 points, while NSE Nifty gained 23.45 points or 0.14 per cent to close at 16,282.25 points. Benchmark indices recorded new highs with BSE Sensex recording a new intraday high of 54,779.66 points and a closing high of 54,554.66 points, both of which were made on Tuesday. Nifty saw a new intraday high of 16,359.25 points made on Tuesday, and a closing high of 16,282.25 points made today.

The screen today was blood red intraday and prices recorded sharp losses. Things recovered with Nifty closing marginally up and BSE Sensex recording very small losses. The range for the day was almost 600 points on BSE Sensex. On Nifty, the day range was almost 200 points. The brunt of the selling was in the midcap and Smallcap stocks and that unfortunately does not reflect in the indices.

In primary market news, shares of Glenmark Lifesciences Limited and Rolex Rings listed during the period. The performance for both these shares has been below expectations. Glenmark Life sciences which had issued shares at Rs 720 closed for trading today at Rs 748, a gain of Rs 28 or just under four per cent, while shares of Rolex Rings who had issued shares at Rs 900 closed at Rs 1,125.80, a gain of Rs 225.80 or just about 25 per cent.

Two issues closed for subscription today. The first was from Nuvoco Vistas Corporation Limited which was subscribed 1.74 times with Retail subscription at 0.74 times the issue size. There were 7.20 lac applications in all. The second issue was from Car Trade Tech Limited which was subscribed 20.29 times. Retail portion saw 17.29 lac applications being received and the retail portion was subscribed 2.40 times.

There are two more primary market issues which would close for subscription tomorrow. In the week ahead, Monday (August 16) would be a listing day special when for the first time ever, there would be four listings happening on the same day.

Dow Jones is at a new lifetime high of 35,264 points which it hit on Tuesday night. The intraday high was slightly higher at 12,285 points. With global markets continuing their rally, there could be more steam left in the Indian markets as well.

Coming to the period of August 12-18, expect markets to rally further, but volatility would remain the same if not increase. The movement would be in the largecap stocks and gains would be registered in this space. There would be stock rotation in the Smallcap and midcap space with different stocks moving up and the majority moving down. The handful that moves up will be done in a manner that stock ownership can be rotated and stocks distributed. Take for example the sugar sector where the Smallcap stocks in the sector have lost 30-50 per cent in value in the last three weeks from their highs. This kind of rotation would be harmful to investors interests and it therefore becomes imperative that they use every rally in such stocks to book profits and exit. As there is some distance and time to go before markets peak out, shift some profits to cash and the balance may be reinvested in the markets.

The trading strategy for the period ahead would be simply put at, be invested in the large cap space and buy on dips and sell on rallies. In case of Smallcap and midcap stocks just one thing to be done, sell and exit.

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