Benchmark indices to consolidate while broad markets to rally

By Arun Kejriwal

Markets behaved on expected lines and made new highs on the benchmark indices. BSESENSEX gained 267.47 points or 0.61 per cent to close at 44,149.72 points while NIFTY gained 109.90 points or 0.85 per cent to close at 12,968.95 points. The broader indices saw BSE100, BSe200 and BSE500 gain 0.95 per cent, 1.19 per cent, and 1.46 per cent, respectively. BSEMIDCAP gained 2.91 per cent, while BSESMALLCAP was up 4.28 per cent,. November futures series expired on a positive note and they gained a massive 1,316.20 points or 11.28 per cent,. The series ended at 12,987 points and the previous series had ended at 11,670.80 points.

 

During the course of the week, BSESENSEX and NIFTY had made a series of new lifetime highs on the first three trading days of the week. The high so far remains at 44,825.37 points on BSESENSEX and 13,145.85 on NIFTY. The benchmark indices recorded gains on three of the five trading days. They were volatile and on Wednesday the intraday swing was 1,070 points on the BSESENSEX and almost 300 points on NIFTY. In the last four weeks the change in the BSESENSEX has been 2,279 points, 1,745 points, 244 points and 267 points while it was 621 points, 516 points, 79 points and 110 points on NIFTY. In terms of percentage this has come down from 5.44 to just about 0.60. Further if one notices the weekly change on the benchmark indices seems to be showing definite signs of fatigue.

Yet another interesting fact is that the cash market turnover on NSE on Friday exceeded 1.5 lakh crore and was largely helped by MSCI index rebalancing which saw FII trade as high as 1.5 lakh crore in terms of gross sales and gross purchases being added. This FII turnover needs to be halved to make it one side as reported on the exchanges. This effectively means that half of the 1.5 lakh crore turnover on the NSE came from FII's. Keeping this in mind it can be presumed that in the immediate short-term, benchmark indices seem to have peaked and the entire action would now shift to the broader markets.

FII's have invested Rs 73,000 crore in the month of November while Domestic institutions have sold equity worth Rs 53,288 crore. Domestic selling indicates that non institutional investors and retail investors in particular have been selling/redeeming mutual funds. Many of those selling, are reinvesting their money in the markets and buying midcap and Smallcap stocks. This also explains the depth of the market increasing significantly with higher participation. The volumes, number of scrips traded on a daily basis, new highs and sharp movement in individual stocks are all indications of action shifting from benchmark indices to mid and Smallcap stocks.

The Indian Rupee gained 11 paisa or 0.15 per cent, to close at Rs 74.05 to the US Dollar. Dow Jones gained 646.89 points or 2.21 per cent, to close at 29,910.37 points.

The week ahead sees Burger King India Limited tapping the capital markets with its simultaneous issue to raise Rs 810 crore through a fresh issue of Rs 450 crore and an offer for sale of 6 crore shares. The issue opens on Wednesday the 2nd of December and closes on Friday the 4th of December. The price band is Rs 59-60. The company is the master franchisee for Burger King international in India and unlike the other listed company Westlife Development Limited who is a franchisee for South and West India for MacDonald's. Burger King had reported revenues of Rs 846 crore for the year ended March 2020 against Rs 1,560 crore by Westlife and almost Rs 4,000 crore by Domino's pizza maker, Jubilant Food works Limited. Both Burger King and Westlife are currently loss making and would take sometime before they begin to make money. Being loss making, the PE ratio for the company is not ascertainable. In comparison, Jubilant Food works which had an EPS of Rs 21.22, trades at a PE multiple of 119.64 based on its March 2020 results. The net asset value (NAV) of Burger King as of September 2020 is Rs 7.62. The issue is expected to receive a good response and the biggest worry is if the HNI portion receives an unprecedented response from the leveraged HNI, which makes the cost of funding after being added to the issue price becoming unsustainable. Current grey market premiums have discounted the HNI portion oversubscription at around 350-400 times.

On the covid-19 front, the world saw 6,25,73,422 patients, 14,58,309 deaths, 4,31,94,258 patients recovering. In India we saw 93,93,039 patients, 1,36,733 deaths and 88,02,267 people recovering. Compared to the previous week, the world saw 40,78,621 new patients, 71,739 deaths and 27,26,304 patients recovering. In India, we saw 2,97,131 new patients, 3,470 deaths and 2,80,650 patients recovering.

The week ahead which begins with a trading holiday on Monday would see benchmark indices under some selling pressure and at best could turn sideways on account of lack of interest or follow up buying or profit taking. The focus would shift to the midcap and small cap space and one would see more buoyancy in the markets. It makes sense to therefore book profits if not already done and wait for buying opportunities on sharp dips in the benchmark indices and their underlying stocks. Look at the better placed midcap and Smallcap stocks which have fundamentals in place for the next leg of market movement. Things should be good in this segment till the FII's and fund managers go on vacation for Christmas and New Year and then return, all in the next 30 days.

Enjoy the rally as the action shifts to the broader market and would continue to provide buying opportunities in the benchmark stocks as well. The rally will only pause for breath or a round of consolidation but still has steam left.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)

Source: IANS