Markets booming but caution is the buzzword

Markets were struggling after four days of trading last week, but Friday turned the tables and saw a very sharp rally. They ended the week with gains of around two per cent. BSESENSEX gained 913.52 points or 1.91 per cent to close at 48,782.51 points while NIFTY gained 328.75 points or 2.35 per cent to close at 14,347.25 points. The broader markets saw BSE100, BSE200 and BSE500 gain 2.85 per cent, 3.00 per cent and 3.07 per cent respectively. BSEMIDCAP gained 5.36 per cent while BSESMALLCAP was up 3.55 per cent. In sectoral indices, the top gainer was BSEMETAL up 9.06 per cent while the only loser was BSEFMCG down 0.79 per cent.

The Indian Rupee lost 12 paise or 0.16 per cent to close at Rs 73.24 to the US Dollar. Dow Jones gained 491.49 points or 1.61 per cent to close at 31,097.97 points.

Markets across the globe seem to be under a massive upward momentum driven by a surge in liquidity and huge investor enthusiasm. Virtually all asset classes are on fire and one hopes that the same does not burn investors when the inevitable correction comes.

What happened in the US at Capitol Hill in Washington DC, is something that at best could be termed as unthinkable, preposterous and an event not associated with a country like the US. Trump supporters laid siege at the Capitol and caused havoc and shook the country. Democrats are now calling to impeach the President, with a mere ten days before he hands over presidency to Joe Biden. Events that have happened are indeed unfortunate. Irrespective of political events, Dow continues to post new lifetime highs.

Anil Agarwal, the promoter of Vedanta Limited has announced an open offer to buy 10 per cent of the company's equity at Rs 160, a discount of Rs 22.05 or 12.11 per cent to the closing price of Rs 182.05 on BSE at the end of Friday. This is the same individual who just recently bought 5 per cent of the company at Rs 160 and had made a delisting offer at Rs 87.25, a few months back. The delisting offer had failed with not enough shares tendered and the discovered price being Rs 320. Anil Agarwal seems to think he is the only smart person in the market and he wants to have the cake and eat it too. He reduced the book value by charging an impairment of assets and expected investors to tender their shares at a substantial discount to the book value. Having failed, he bought shares at Rs 160. Now he again wants shareholders to tender at a discount when commodity prices have gone through the roof. Wonder whether he is being an over optimistic opportunist or knows something much more than what the whole world knows. Hope the regulator keeps tabs on those who tendered shares in the earlier 5 per cent offer to Anil Agarwal and those who may tender shares now at a discount to him as well. Technical analysts on the street are very bullish on the stock of Vedanta and expect it to rise substantially from here as well.

Friday saw frenzied buying in the last 30-60 minutes after apparently MSCI removed three telecom companies from their index and saw the remaining stocks weightage balanced accordingly. This saw huge rallies and many stocks just went berserk. Whether this would continue when trading resumes next week is anybody's guess.

TCS began the result season for the October-December quarter with a big bang. The company reported its best ever or strongest 3rd quarter in nine years with revenues growing 5.42 per cent year on year and net profit rising 7.18 per cent. Its revenues were Rs 42,015 crore while profits were up to Rs 8,118 crore. Results were announced post market closing on Friday. The company has also declared a third interim dividend of Rs 6 per share on face value of Rs 1. The stock had closed at Rs 3,120.35. The company had just last month completed its buyback at Rs 3,000 per share.

Infosys and Wipro would be announcing their results in the coming week along with many other companies.

On the covid-19 front, the world saw 9,01,01,509 patients, 19,35,211 deaths and 6,44,92,597 people recovering. In India we saw 1,04,51,346 patients, 1,51,048 deaths and 1,00,75,950 patients recovering. Compared to the previous week, the world saw 51,13,206 new patients, 91,478 deaths and 43,86,215 patients recovering. In India, we saw 1,26,715 new patients, 1,577 deaths and 1,48,640 patients recovering. Vaccination is to begin in India from the 16th of January and the country is one of the top contenders for supply of vaccine to the world. Brazil is the latest to ask for supplies.

Coming to the markets, we appear to be in the state of disbelief as far as valuations and rationale go. Stocks seem to be running wild and simply shoot through the roof on huge unseen volumes. While momentum is simply amazing and shocking, it's also time to be cautious, as these are the cautionary signals one gets before the markets peak. For the records, in two of the last three years we saw markets peaking in January. This happened in 2018 and 2020. In 2020, the peak of January was crossed 10 months later in November.

Further the Union budget would be presented on the 1st of February. The government does not have the comfort of doling out any freebies this time around simply because in the current year the collections have been very poor on account of the pandemic. What can be expected at best is incentives for higher production across sectors. You manufacture, you benefit. You sell, you benefit. The government would incentivise production and consumption to kickstart the economy. Not sure how much of this would be liked or not liked by the market.

Considering what is stated above it makes sense to have a simple strategy of booking profits and improving the risk profile of the balance portfolio. Any person recommending profit taking would be considered to be foolish looking at the present market mood and momentum, but so be it.