Uncertainty looming large over bourses

The stock market in the short four-day period during March 4- 8 was extremely volatile. The key indices lost on Thursday, gained sharply on Friday and Monday and Tuesday was a holiday. They were weak on Wednesday on negative cues from Dow on Tuesday night at the open, and till more than midway through the day. Towards the end they rallied and managed to close with gains. At the end of the period, BSE Sensex gained 937.01 points or 1.58 per cent to close at 60,348.09 points, while Nifty gained 304.30 points or 1.74 per cent to close at 17,754.40 points.

Dow Jones gained consecutively on the first four days of the period under review, but had a sharp sell-off on Tuesday night. Fed Chairman Jerome Powell on Tuesday cautioned that interest rates are likely to head higher than central bank policymakers had expected. This saw markets fall by as much as 575 points. Dow gained at the end of the period 202.76 points or 0.62 per cent to close at 32,856.46 points. The Fed interest band is currently 4.50-4.75 per cent and it is expected that there would be one rate hike of 50 basis points and at least two more of 25 basis points before a pause. With this comment there may be two or three rate hikes of 50 basis points taking the rate to around 5.75-6 per cent.

While on the subject of interest rates, LIBOR rates touched five per cent for the first time in 15 years. This clearly shows the pressure on interest rates on account of rising inflation. While peak inflation rates have come down, the overall effect of inflation on the economy has still to ease, which is leading to increase in interest rates and cost of living in Europe and USA.

The primary market continues to remain fairly quiet. We do have a small IPO opening on Monday (March 13) and closing on Wednesday (March 15). The issue is from Global Surfaces Limited, which consists of a fresh issue for 85.20 lakh shares and an offer for sale of 25.50 lakh shares in a price band of Rs133-140. The company is into processing of marble and manufacture of composite marble. It’s a small company and the objects of the issue are to set up a composite marble unit in the free trade zone in UAE at Jebel Ali. The shares are being offered at a PE band of 12.64-13.31. There is only one comparable player in Pokarna Ltd.

Shares of Adani group have stabilised ever since there was an investment of Rs15,500 crore in shares of four companies of the group by an investor from the US. This investment was in Adani Enterprises at R1,408, Adani Green at Rs504.60, Adani Ports at Rs596.2 and Adani Transmission at Rs668.4. Share prices post the investment which happened on March 2 have moved up substantially and effectively become a benchmark which may be treated as a stop loss and fresh investments made. The appreciation has been spectacular with Adani Enterprise up close to 44 per cent, while the other shares have risen between 18% and 22.5%. Without doubt, this investment has changed the market mood and sentiment.

Coming to the March 9-15 period, expect markets to remain volatile. Keep one eye on what happens in the US as markets there are very nervous about the Fed’s action on interest rates and the money supply. The Fed Chairman has a twin responsibility of keeping inflation under check and also tightening the economy by reducing the money supply which was given during earlier years and helping in reducing the balance sheet size. It’s a tough ask and there will be wild movements in the market.

Coming to India, we have initial resistance on the indices at levels of 17,750-17850 on Nifty and 60,250-60,550 on BSE Sensex. Incidentally the high made on Monday was 17,799.95 and 60,498.48 points. This is not to suggest that markets have to necessarily reach these levels. The guidance is on account of the change in mood and upbeat sentiment post some clarity on the Adani group last week. The higher resistance would remain in the region of 18,265 on Nifty and 61,400 on BSE Sensex. This currently looks like the best for the markets at current times. On the lower side strong support exists at the budget day low made on 1st February of 58,816.64 points on BSE Sensex and 17,353.40 points on Nifty. If these are broken then the next line of defence would be 17,000-17,050 on Nifty and 57,900-58,050 on BSE Sensex.

The strategy would be to trade intraday and avoid large positions overnight as cause for worry is developments in the US. Trade cautiously and keep light overnight positions.

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