Markets awaiting trigger for correction

Markets last week were a four-day week and gained on the opening day, but remained sideways on the remaining three days. BSESENSEX gained 175.12 points or 0.30 per cent to close at 58,305.07 points. NIFTY gained 45.65 points or 0.26 per cent to close at 17,369.25 points.

Incidentally the closing on Thursday were at lifetime highs on both the BSESENSEX and NIFTY. The intraday highs were made earlier on the 7th of September at 5,8553.07 points and 17,436.50 points respectively. The broader markets saw BSE100, BSE200 and BSE500 gain 0.31 per cent , 0.37 per cent and 0.48 per cent respectively. BSEMIDCAP and BSESMALLCAP had a strong showing during the truncated week and gained 1.33 per cent and 1.24 per cent respectively.

The Indian Rupee lost 48 paise or 0.66 per cent to close at Rs 73.50 to the US Dollar. Dow Jones had a very poor showing and lost on all five days of the week. Dow Jones was down 761.37 points or 2.15 per cent to close at 34,607.72 points. In what could be said as an ominous sign for Dow Jones, it lost more than a third of its weekly losses on Friday and closed at around the low of the day, indicating likely further weakness when trading resumes in the new week.

SEBI, the regulator has permitted stock exchanges to introduce shortened settlement cycles with effect from the 1st of January 2022. Against the present T+2 settlement cycle, the new cycle would be T+1. Exchanges would have to inform in advance, which stocks would be traded under the new guidelines. Brokers associations have expressed their anguish against the same as they believe that this would benefit the online brokerages and be a disadvantage for the old back office driven brokerages. Surprisingly, FPI's have raised concerns against the proposed scheme and said this will make trading difficult for them under the new regime. While we still have over three months to go before the scheme is implemented, the last word on the same has not yet been said.

After the busy month of August as far as the primary market was concerned, we have the first issue opening in September. The issue from auto component manufacturer Sansera Engineering Limited is tapping the capital markets with its offer for sale of 1,72,44,328 shares in a price band of Rs 734-744. The issue opens on Tuesday the 14th of September and closes on Thursday the 16th of September. The company reported revenues of Rs 1,575 crore for the year ended March 21. This was roughly 10 months working as the rest was lost on account of lockdown on account of covid. The company has half its turnover for the two-wheeler and motorcycles segment, a fourth from passenger vehicles and about 13 per cent from commercial vehicles. The rest comes from aerospace, off highway vehicles, agriculture and others.

The company reported EBITDA margins of 19 per cent for the year ended March 21 which were higher than the 16 per cent reported in the previous year. Net Profit of Rs 109.9 crore for March 21 was at a net margin of 7 per cent. The diluted EPS for the year 2021 was Rs 20.55. At this EPS, the PE price band is 35.72-36.20. The company has been taking more than adequate safeguards in growing business considering the advent of EV in the coming years. The issue is adequately priced and offers scope for appreciation in the medium and long term.

Coming to the Covid-19 front, the world saw 22,51,13,117 patients, 46,38,620 deaths and 20,16,53,284 patients who had recovered. In India, we saw 3,32,36,921 patients, 4,42,688 deaths and 3,24,09,346 patients who had recovered. Compared to the previous week, the world saw 39,75,944 patients, 62,930 deaths and 40,23,892 patients who had recovered.

In India we saw 2,48,248 new patients, 2,121 deaths and 2,71,254 patients who had recovered. The number of people who have been vaccinated now stands at 73.82 crore who have been given the first and second doses combined. This number has been rising steadily and has increased by 6.10 crore in the previous week.

Markets saw the benchmark indices close at new lifetime highs, but the disturbing fact was that during the last three days, markets were struggling and remained sideways. Heavyweight stocks were used to prop the benchmark indices. Secondly, there was some renewed activity in Smallcap and midcap stocks which could be more of a renewed interest by interested holders to create a conducive atmosphere to raise prices and then sell. Thirdly the weakness in Dow is not sending the right signals for further sustained rally from hereon. Considering these points, it makes sense to continue to reduce positions and sit on some amount of cash and plenty of investing opportunities would be available.

The strategy would be to allow markets to find their own levels of comfort and use rallies to sell and very sharp dips to buy. The focus of the universe of stocks should continue to remain the very large cap stocks only. Markets seem tired and are looking for a reason to correct. What could be the trigger is the only question remaining unanswered.