Markets critically poised with imminent correction

By Arun Kejriwal

Markets continued to gain ground in the week gone by, but significantly lesser than the previous week. They were up on three of the five trading days and lost on two days. However, on three of the five trading days, markets were sideways and more than sixty per cent of the week's gains came because of Monday alone. This clearly shows that markets seem to be running out of momentum and are seeking a reason to correct. Further there have been many an occasion when they spend their time recovering lost ground during the day. All of this suggests an impending sharp correction sooner than later. When? Is the million-dollar question and I am quite sure the exact date is not yet ascertained. Suffice to say we are there, and it could be just any day hereon.

BSESENSEX gained 812.67 points or 1.60 per cent to close at 51,544.30 points while NIFTY gained 239.05 points or 1.60 per cent. The broader markets saw BSE100, BSE200 and BSE500 gain 1.70 per cent, 1.76 per cent and 1.87 per cent respectively. BSEMIDCAP gained 2.56 per cent while BSESMALLCAP was up 2.75 per cent. The top sectoral gainer was BSEREALTY, while loser was BSEFMCG. One single stock in the FMCG pack, ITC which lost 7.17 per cent brought the BSEFMCG index down. Just for reference, the gains in the previous week were 9.61 per cent on BSESENSEX and 9.46 per cent on NIFTY.

The Indian Rupee gained 17 paise or 0.23 per cent to close at Rs 72.75 to the US Dollar. Dow Jones had a strong week and gained 310.16 points or 1.00 per cent to close at 30,458.40 points.

The week ahead sees two primary issues being launched. The first is from Nutreca Limited which plans to raise Rs 100 crore in a price band of Rs 396-400. The issue opens on Monday the 15th of February and closes on Wednesday the 17th of February. The company had reported sales of Rs 99.48 crore in the year ended March 2020 which has shot up to Rs 122.97 crore in the six months ended September 2020. Its profit before tax in the same period has moved from Rs 15.74 crore to Rs 74.32 crore. Its EPS is an astonishing Rs 51.69 for the six-month period ended September 2020. The company which is a subsidiary of a private limited company has issued bonus shares in the ratio of six shares for every share held in September 2020.

Post this bonus issue the PE ratio is 43.33 to 43.76 times based on March 2020 numbers. The company buys all its products from a listed group company Nectar Lifesciences Limited which has been struggling and reporting losses. Surprising that such a productivity and profitability jump for a trading company which is more than 12 times during Covid-19 lockdown while the original manufacturer-supplier is still struggling. The company has also paid Rs 11.52 crore in the six-month period to the parent as business support services. This company chose not to make potential investors aware about itself through the now convenient and cost-effective method of organising a video conference. Beats me behind the logic of remaining incognito.

Robinhood investors take your call in subscribing to such an issue where credentials are suspect and the share would trade in the trade-to-trade category for the first ten trading sessions.

The second issue is from PSU company RailTel Corporation Limited. The issue opens on Tuesday the 16th of February and closes on Thursday the 18th of February. The offer for sale is for 8,71,53,369 shares in a price band of Rs 93-94. The company is into three broad verticals namely: national long distance internet service provider, telecom infrastructure and managed data centre and hosting. It also has a projects division which does activities in all these three areas plus more. The company had revenues of Rs 1,128 crore for March 20 and Rs 537 crore for the six months ended September 20. Its profits before tax were Rs 184 crore and 67 crore respectively. The company reported an EPS of Rs 4.40 for the year ended March 2020 and the PE multiple is 21.14 to 21.36 times this earning. The network for ISP has been created and this should see the company increasing its revenues and its profit in this segment going forward. Secondly, being the telecom arm of the railways, it is executing a number of projects concerning railway safety and accident-free rail travel which on completion would increase profitability of the company significantly.

On the Covid-19 front, the world saw 10,91,06,821 patients, 24,05,472 deaths and 8,11,38,554 patients who had recovered. In India we saw 1,09,04,940 patients, 1,55,673 deaths and 1,06,11,731 patients who had recovered. Compared to the previous week the world saw 27,63,920 new patients, 85,037 new deaths and 31,58,390 patients who recovered. In India we saw 77,770 new patients, 645 deaths and 90,322 patients who recovered. India continues to unlock itself and there have been pockets where number of Covid-19 patients have seen a spurt, but overall conditions are well under control

The week ahead is likely to see the actual correction hitting the market after giving us in the previous week all the early indicators necessary. Assuming I am wrong in my timing it would not make any significant difference as I am only suggesting booking profits and waiting on the side-lines for opportunities to present themselves before re-entering the markets. Results for the quarter October-December 2020 would have been completed and pockets of strength and weakness would be available for taking informed decisions. Use this opportunity wisely as it appears that markets are becoming heavy.

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

Source: IANS