Trade cautiously amid volatility

The domestic market in the February 22-28 period under review was choppy and volatile. At the start of the last day of the period under review, they had witnessed two days of gains and two days of losses. After opening positive, the markets slipped into the red and then after alternating between positive and negative, losses started widening. At the end of the day, they ended negative. BSE Sensex ended with losses for the period under review, losing 318.21 points or 0.44% to close at 72,384.80 points, while Nifty lost 103.95 points or 0.47 per cent to close at 21,951.10 points. Strange coincidence that on the first day of the period under review, the markets lost at the open and then closed with gains while on the last day, they gained at first and then lost. Dow Jones gained on three of the five trading sessions and lost on two. It gained 408.61 points or 1.06% to close at 39,972.41 points.

Our markets are seeing extreme volatility and a classic example was what one saw on the opening day of the period under review. On Thursday (February 22), markets opened in the red, but rallied smartly to close in the positive. The intraday movement on Thursday between the low and the close was 1,076 points on BSE Sensex and 342 points on Nifty. If one compares this to the weekly losses, it’s almost 3.5 times on BSE Sensex and thrice on Nifty. The markets had probably a sharp intraday correction. The reason this is being mentioned that one could see many more such movements going forward as markets move closer to the elections. Shares of Juniper Hotels Ltd listed on the bourses on Wednesday (February 28). The response to the issue was nothing great and the issue was subscribed 2.07 times. QIB portion was subscribed 2.96 times, HNI portion undersubscribed at 0.84 times and Retail portion subscribed 1.24 times. There were 1.21 lakh applications. The issue debuted at Rs361.20 on BSE and at Rs365 on NSE compared to the allotment price of Rs360. The share was locked at upper circuit of 10 per cent at Rs397.30 at BSE and at Rs401.50 on NSE. The share closed day one at the upper circuit on both exchanges.

For the fixed income category of investors there is an issue from Bharat Highways Invit, which opens in the week ahead. The issue consists of units which would be issued in a band of Rs98-100. The issue would be of Rs2,500 crore and the issue would open on Wednesday (February 28) and close on Friday (March 1).

The INVIT would have an initial portfolio of seven assets, which are HAM assets from GR Infraprojects Ltd. The HAM model consists of semi-annual annuities which are given by NHAI. The INVIT also has the right of first offer or ‘ROFO’ for the remaining 23 assets owned by GR Infraprojects. There is also a ROFO right for any assets that would be made by GR Infraprojects for the next five years.

The expected payout from this instrument is expected to be at 400 basis points higher than the current G sec rate. This would translate into an effective yield of between 11.25%-11.75%, making it attractive for investors with a fixed income return. As the assets are based on HAM model, there is no risk involved linked to traffic or toll collection whatsoever. Decent offer for investors looking at a fixed income as this would also take care of interest rates as and when the fall or rise as the project has been designed accordingly.

The week ahead sees the issue from Exicom Tele-Systems Ltd tap the markets. The issue has opened on Tuesday (February 27) and would close on Thursday (February 29).

The issue consists of a fresh issue of Rs329 crore and an offer for sale of 70,42,200 shares in a price band of Rs135-142. The company is a power management solutions provider, operating under two business verticals, wherein the first is critical power solutions and the second is into manufacture and supply of Electric Vehicle supply equipment which includes EV Chargers for residential, business and public charging.

The company reported revenues of Rs723.39 crore for the year ended March 23. About 2/3rd of the revenue comes from the power business while 1/3rd comes from the EV business. Needless to say, the margins and the growth in the EV business vertical are significantly higher than the power business which is competitive. The company reported an EPS of Rs3.38 for the year ended March 23. The PE multiple of the company is at 39.9-42.01. The price band is attractive considering the business opportunity and the sustained demand of EV chargers going forward. The issue would do well and be oversubscribed many times. At the time of writing this article, midway through the second day, the issue subscribed 15.65 times. There are 12.84 lakh applications already. Apply, and hope that allotment happens.

The February 29-March 6 period ahead would see February futures expire on Thursday (February 29). Thursday would be a leap day and this event of expiry would be happening after a gap of 28 years. The last time this happened was on the 29th February of 1996. Not sure what markets have in store for us. As of today, the series is in favour of the bulls and the series gains are at 702.49 points or 3.29 per cent. With just one day to go, bulls would like to press home the advantage, while bears would like to pull some more back as they did on Wednesday.

The period ahead would see sharp volatility coupled with even greater intraday movement. Action is certainly and surely shifting to the large cap space and one is seeing huge distribution taking placer across the midcap and Small-cap space. Even regulators are becoming cautious about this space and are asking mutual funds, who are the biggest investors in this space, to highlight risks in detail. Safety lies in shifting to the larger cap stocks.

Support for the markets is at 21,900 points on Nifty, which is from where they took support last Thursday. If this were to break and trade below, markets could fall to around 21,600-21,650 points. Similar support on BSE Sensex would be at 72,000 points and 71,100 -71,200 points on BSE Sensex. On the upside, a new high on BSE Sensex surpassing the 16th January high is an immediate target and objective. Use sharp dips to buy and any rallies to sell. Focus as mentioned earlier should shift to large-cap stocks. Looking at the volatility suffice to say trade cautiously.

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