Volatile expiry and budget expectations to drive markets

The BSESENSEX hit the important milestone of 50,000 and reacted quite sharply from there. It was like it got a 440-volt electric shock and lost ground for the remaining two days of the week. The headline number for the week says that the BSESENSEX lost 156.13 points or 0.32 per cent to close at 48.878.54 points. NIFTY lost 61.80 points or 0.43 per cent to close at 14,371.90 points. The low and high for the week was 48,403.97 points and 50,184.01 points on the BSESENSEX. It was 14,222.80 points and 14,753.55 points on NIFTY.

This means that effectively BSESENSEX lost 600 on Monday at the low, gained 1800 points to form the top on Thursday and then lost 1400 points to the close. This implies a total movement of 3,800 points while the net effect was a mere 156 points. On the NIFTY the loss was 200 points, gain 530 points and a loss of 380 points. Effectively this was 1,110 points in a mere five days of trading. This was to illustrate the extreme volatility that markets are witnessing at these new lifetime highs.

The broader markets saw BSE100, BSE200 and BSE500 lose 0.47%, 0.63% and 0.65% respectively. BSEMIDCAP lost 0.75% while BSESMALLCAP was down 1.39%. The Indian Rupee gained 9 paisa or 0.12% to close at Rs 72.98 to the US Dollar. Dow Jones gained 182.72 points or 0.59% to close at 30,996.98 points. Its lifetime high made during the week was 31,272 points.

The week gone by had plenty of action as far as the primary market was concerned. Two issues opened and closed for subscription. One issue opened and would close for subscription while a fourth issue completed its anchor allocation and would open and close in the coming week. The bunching of these issues with such an overlap makes one believe that promoters and merchant bankers believe that sentiment and market momentum may take a beating post the budget being presented.

Indian Railway Finance Corporation which had tapped the capital markets to raise Rs 4,633 crore in a price band of Rs 25-26 was oversubscribed 3.49 times. QIB portion was subscribed 3.78 times, HNI portion 2.67 times and Retail portion was subscribed 3.66 times. The employee quota was oversubscribed an unbelievable 43.76 times. Bids for 84.15 lakhs were received in the employee quota when this company boasts of having just under 25 employees. It appears that employees of the parent company, Indian Railways have applied mistakenly under this category and unfortunately their bids in this segment would stand cancelled. The issue would list on Friday the 29th of January.

The issue from Indigo Paints Limited closed for subscription on Friday. The issue was oversubscribed 117.02 times. QIB portion was subscribed 189.57 times, HNI 263.05 times, Retail portion was subscribed 15.93 times and Employee portion was subscribed 2.50 times.

The third issue was from Home First Finance Limited which is tapping the capital markets with its fresh issue of Rs 265 crore and an offer for sale of 151.57 lakh shares in a price band of Rs 517-518. The company had in October allotted 5% of the equity to an existing private equity investor Warburg Pincus at Rs 335.The company reported an EPS on a fully diluted basis of Rs 10.53 for the period ended March 2020. Based on these earnings the PE ratio is 49.10 to 49.19. The issue opened on Thursday and would close on Monday the 25th of January.

The fourth and final issue is from the kitchen appliance maker Stovekraft Limited which is tapping the capital markets with its fresh issue of Rs 95 crore and an offer for sale of 82.5 lakh shares in a price band of Rs 384-385. The company operates under the brands Pigeon and Gilma. The company has been loss-making and has just before going public become profitable, which seems coincidental. Based on the fully diluted and restated EPS for the year ended March 2020 of Rs 1.05, it is a staggering 366.67 times. Two of the large listed peers, TTK Prestige and Hawkins Cookers trade at a PE multiple of 44.93 and 42.25 times respectively. The issue would open on Monday and close on Thursday, the 28th of January.

January futures would expire on Thursday, the 28th of January. The December series, which had expired at 13,981.75 points, is currently up 390.15 points or 2.79%. This is the lowest series gain in the last few months and looking at the volatility being currently witnessed; a lot of drama is expected in the next three days to expire. Expect bulls to put all they have at their disposal to pull the series up while bears try to salvage the month after being hammered over the last few months. It may be of interest to investors, that FPI's were sellers of about Rs 625 crore on Friday. Whether this is an isolated event or would become a trend, only time would tell.

Reliance industries announced a great set of numbers and improved performance in all their verticals. The company reported a consolidated EPS of Rs 20.5 for the quarter before exceptional items. This was up 38% compared to the previous year. During the week, shares of Reliance Industries gained Rs 112 or 5.78% to close at Rs 2,050. With this strong performance, there is every possibility that the share could lead from the front and help bulls gain traction in the market.

Reserve Bank of India has announced a discussion paper on NBFC's. The crux of the discussion hovers around reducing the arbitrage between NBFC's and Banks. An important event is the funding of HNI's by NBFC's which is proposed to be capped at Rs 1 crore per individual. This would have a serious impact on the subscription levels of HNI's in issues once the discussion paper becomes law.

On the Covid-19 front, the world saw 9,93,29,286 patients, 21,30,422 deaths and 7,13,71,105 patients recovering. In India, we saw 1,06,55,435 patients, 1,53,376 deaths and 1,03,16,786 patients recovering. Compared to the previous week, the world saw 43,61,205 new patients, 99,140 deaths and 35,84,346 patients recovering. In India, we saw 96,275 new patients, 1,065 deaths and 1,19,901 patients recovering. Covid-19 vaccination is picking up in the country and various misconceptions about the same are being put to rest. One hopes that the world comes out of this pandemic and is able to control the same.

The week ahead has a trading holiday on Tuesday on account of the Republic Day. January futures expire on Thursday which means that after the holiday there would be just two trading days. Markets would be super volatile and rumours about expected changes in the Budget would be flying thick and thin by then. At this point, there is hardly any clarity on the budget expectations. In such a scenario it makes sense to continue booking profits and use rallies to sell into. It may be advisable to not buy into sharp dips and wait for a budget announcement before taking fresh positions.