Market correction has just begun

By Arun Kejriwal

It was an eventful week at the markets and in hindsight looks as one, where indices have turned downwards at least in the short term. After hitting new highs, markets were unable to capitalise on the momentum and it looks like the Dow Jones impact has hit us hard. BSESENSEX closed the week with losses of 130.31 points or 0.25 per cent to close at 52,344.45 points. NIFTY lost much more at 116 points or 0.73 per cent to close at 15,683.35 points. The broader indices saw BSE100, BSE200 and BSE500 lose 0.92 per cent, 1.28 per cent and 1.31 per cent respectively. BSEMIDCAP lost 3.01 per cent while BSESMALLCAP lost 1.86 per cent.

The Indian Rupee lost 79 paise or 1.08 per cent to close at Rs 73.86 to the US Dollar. Dow Jones lost on all five days of the week and was down 1,189.52 points or 3.45 per cent to close at 33,290.08 points. This value on Dow Jones was last seen in the first week of April 21. With this week's fall, Dow Jones gains in the current calendar year have reduced to 8.77 per cent. The weakness is attributed to the commentary post the FED meeting which indicates that interest rates would rise a year earlier than expected. This weakness could persist and see markets correcting, an event which was long overdue.

In India we saw BSESENSEX make a high of 52,869.51 and NIFTY a high of 15,901.60 points. In the week gone by we saw markets gain on two days, lose on two days and they were flattish on Friday after huge volatility. What saved the day for markets on Friday was the rebalancing of NIFTY and the FTSE indices which led to the last half hour buying in the key stocks. This also resulted in net FII inflows of about Rs 2,650 crore on Friday. This is not to be confused with the large sale of 4.8 cr shares in SBI Cards where the PE investor Carlyle sold through a series of bulk deals and was bought by a group of FPI's led by Morgan Stanley.

The primary markets saw four issues opening and closing last week. The first was Shyam Metalics & Energy Limited which had raised Rs 657 crore through a fresh issue and an offer for sale of Rs 252 crore in a price band of Rs 303-306. The issue was subscribed 120.93 times with the QIB portion subscribed 153.45 times, HNI portion subscribed 339.98 times, Retail portion subscribed 11.64 times and Employee portion subscribed 1.55 times.

The second issue was from Sona BLW Precision Forgings Limited which had tapped the markets with a fresh issue of Rs 300 crore and an offer for sale of Rs 5,250 crore. The issue was subscribed 2.28 times. QIB portion was subscribed 3.46 times, HNI portion remained undersubscribed at 0.39 times and the Retail portion was subscribed 1.58 times.

The third issue was from Dodla Dairy Limited which had tapped the markets with its fresh issue of Rs 50 crs and an offer for sale of 1,09,85,444 shares in a price band of Rs 421-428. The issue was subscribed 45.62 times. The QIB portion was subscribed 84.88 times, HNI portion was subscribed 73.26 times and Retail portion was subscribed 11.34 times.

The fourth and final issue was from Krishna Institute of Medical Sciences Limited which had tapped the capital markets with its fresh issue of Rs 200 crore and an offer for sale of 2.35 cr shares in a price band of Rs 815-825. The issue was subscribed 3.86 times. QIB portion was subscribed 5.35 times, HNI portion was subscribed 1.89 times, Retail portion was subscribed 2.90 times and Employee portion was subscribed 1.06 times.

The issues from Shyam Metallics and Sona BLW would be listed on Thursday the 24th of June.

There is another IPO hitting the markets in the week ahead. The issue is from India Pesticides Limited which is tapping the markets with its fresh issue of Rs 100 crs and an offer for sale of Rs 700 crore in a price band of Rs 290-296. The issue opens on Wednesday the 23rd of June and closes on Friday the 25th of June.

The company is into manufacture of agro-chemical technical and formulations in India and for export. More than 60 per cent of the revenue comes from exports. The real growth in the company has been witnessed over the last 3 years when the company began increasing its manufacturing capacities. Its capacity of 10,000 tons has almost doubled to 19,500 tons by the end of March 21 and is set to increase to 29,500 tons by the middle of June 22. This increase saw the revenues almost double from Rs 340 crore in FY19 to Rs 650 crore in FY21. The company being technology and R&D focused has many molecules developed by it. Two of its molecules namely Captan and Ziram are widely used for apples and vineyard applications and are highly successful in India and abroad. About a fifth of revenues comes from these molecules. The company reported an EPS of Rs 12.07 for the year ended March 21. The PE multiple for the issue is 24.03-24.52 based on consolidated numbers for March 2021.

The challenge for the company is to ensure that capacity enhancement continues to be ahead of the demand curve of this fast-growing industry which is highly competitive.

On the Covid-19 front, the world saw 17,89,61,898 patients, 38,75,609 deaths and 16,34,90,510 patients recovering. In India we saw 2,98,81,965 patients, 3,86,740 deaths and 2,87,66,009 patients recovering. Compared to the previous week, the world saw 25,39,511 new patients, 64,657 deaths and 30,94,210 patients recovering. In India we saw 4,41,976 new cases, 16,333 deaths and 7,22,563 patients recovering. While the 2nd wave seems to be under control, we need to be extra cautious of overzealous people overcrowding public places and believing everything is near normal. This overcrowding could again cause a third wave to happen and this could be deadlier than the 2nd. Please be cautious in your movements and ensure that masks and social distance are observed at all times.

DRT or debt recovery tribunal would be selling shares owned by Vijay Mallya in the coming week and at current prices they are likely to recover Rs 6,200 crore. This would be big news and would benefit the largest lender to Mallya, State Bank of India.

Shares of the Adani group were under pressure after news items about demat accounts owning large numbers of Adani group shares were frozen. There were various clarifications which emerged, yet the damage was done. Adani Ports, which is part of NIFTY, saw its share drop 17.19 per cent to close at Rs 694.60.

The June series expires on Thursday the 24th of June. The current series is ahead by 345.50 points or 2.25 per cent at the current level. While in normal circumstances this would have been a sizeable lead and bulls would have pressed the pedal to romp home, things look different this time. They have lost momentum and markets after hitting new highs seem to have lost their way. They are under pressure and global markets are not helping either. Concerns of inflation and interest rates rising is worrying the markets.

Considering the above, it appears that a correction followed by consolidation and sideway movement is on the cards in the coming week. The break in the momentum would ensure that no immediate rally happens in the coming five days of the week. The strategy would be to sell on rallies and exit those stocks where fundamentals do not justify valuations. The market breadth has been very poor last week and one is likely to see further worsening in the week ahead. Trade cautiously and avoid fresh purchases unless prices look very attractive.

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

Source: IANS