After some cooling in markets, expect rebound in expiry week

Markets were under pressure last week and gave early warning signals on Monday, the first day of the week itself. BSESENSEX lost 484.33 points or 0.79 per cent to close at 60,821.62 points, while NIFTY lost 223.65 points or 1.22 per cent to close at 18,114.90 points. The broader indices saw BSE100, BSE200 and BSE500 lose 1.80 per cent, 2.00 per cent and 2.34 per cent respectively.

BSEMIDCAP and BSESMALLCAP were under tremendous pressure and lost significantly more, losing 4.24 per cent and 5.21 per cent respectively. The top sectoral gainer was BSEBANKEX which gained 3.01 per cent while the top loser was BSEFMCG which was down 6.08 per cent. Benchmark indices saw BSESENSEX and NIFTY make new lifetime highs on closing basis on Monday and intraday highs on Tuesday before correcting over the week. These were 61,765.59 points and 62,245.43 points on BSESENSEX and 18,477.05 points and 18,604.51 points on NIFTY. For any new uptrend to begin, these levels become the first target to be overcome.

The India Rupee gained 37 paise or 0.49 per cent to close at Rs 74.89 to the US Dollar. Dow Jones hit a new lifetime high on intraday and closing basis as well. The lifetime intraday high was 35,765 points. During the week, Dow Jones gained 382.26 points or 1.08 per cent to close at 35,677.02 points, which is a new closing high.

Coming to our markets during the week gone by, they gained on Monday but lost on the remaining four days of the week. Even though they gained on Monday, they gave early warning signals of the impending correction when the close on Monday was lower than the open. Secondly even on a day when markets gained, the number of stocks that advanced were lower than the number of stocks which declined. This negative advance decline ratio is a very important tool in technical analysis and is a sure shot advance indicator of events to unfold.

In the coming days we saw the bears claw back into the markets with guerrilla warfare tactics where they attacked individual stocks which had become momentum play and hammered them down substantially. This broke the back of many investors and also ensured that the sentiment turned from euphoria to one of caution. This was reflected in the weak sentiment which remained at the end of the week. Some of the stocks which were hammered included IRCTC, IEX and Tata Motors to name a handful. This also resulted in the midcap and Smallcap indices losing significantly more than the benchmark BSESENSEX and NIFTY stocks.

In significant announcements during the week, the one from RBI in reference to HNI funding by NBFC's post 1st April 2022 is the most significant and relevant announcement. RBI in January 2021 had circulated a white paper which proposed that the maximum leverage or funding to be given to an individual for application in primary issues would be limited to Rs 1 crore. This has been notified with effect from 1st April 2022 and would have far reaching implications for how primary market issues take place post this date. Currently one hears of the HNI portion being oversubscribed over 300-500 times and that HNI's leverage their funds 100 times. This means that with Rs 1 crore of their own funds, they could make an application for Rs 100 crore. Now they can make an application for just that amount of Rs 1 crore being added to their own funds. This would bring down subscription levels significantly in the HNI category. The direct result or impact of this would be that the factoring of interest cost or funding cost in the grey market premium would disappear and effectively make valuations of IPO bound companies closer to reality or fair value.

This would be akin to you having a milkshake without the froth or having a smoothie which has no froth. Added to this is the directive from SEBI which has split the IPO bucket of HNI into two categories and would impact share oversubscription. With over 60 primary issues in the pipeline, expect many more to join the bandwagon and time to hit the market before the deadline of 1st April kicks in for new HNI funding rules.

Results season continues with the larger companies from the benchmark indices declaring results which are good and on expected results. We have not had any major unpleasant surprises except the one from Hindustan Unilever where there are rising costs impacting the bottom line.

The week ahead sees a number of IPO bound companies hitting the market with their road shows. Prominent among them would be the fashion maker portal or platform 'Nykaa'. This would be followed by issues from Policy Bazaar, Fino Payments Bank, Popular Vehicles and SJS Enterprises Limited over the next fortnight. This time with Diwali a mere eight trading sessions away, we are likely to see issues opening before Diwali and closing post Diwali, straddling into two weeks with a four-day holiday in between.

On the vaccination front, India has crossed an important milestone with one hundred crore jabs having been given. This number has since crossed to 102.18 crore vaccinations with 71.74 crore being first dose and 30.43 crore being fully vaccinated. Festival season is coming up and so is a larger scale opening up of the Covid restrictions. We all need to be extra cautious and follow rules strictly so that the dreaded third wave may be avoided.

The week ahead sees October futures expire on 28th of October. The current value of NIFTY at 18,114.90 points is higher by 496.75 points or 2.82 per cent for the series. While this is a low number compared to the gains made in recent months, the battle is far from over. Bulls and Bears would contest fiercely in the coming days to show their supremacy. Looking at the fall in the last week, it would be fair to assume that there would be some corrective rally in the coming week. Whether the rally has the strength to increase momentum and make new highs looks difficult in the upcoming week as of now. Post the week ahead, readers should be aware that the week 1st November to 3rd November is a mere three-day week followed by Muhurat trading and Diwali holiday. With a mere three-day trading, markets tend to remain less volatile and traders prefer to keep positions light.

Focus in the week ahead would continue to remain stock specific rather than sector specific and the strategy should be to buy into the dips which have happened and sell when markets rally. Friday action in railway stocks such as IRFC, Ircon and RVNL would be keenly watched as they have made huge gains and follow up action would be keenly awaited. Further in the week gone by, FPI's and DII's have been big sellers in the cash market and sold on a net basis more than 11-12K crore. This has increased the floating paper in the market which would see further increase with the large number of IPO's coming.

Expect volatility, some rebound in the early part of the week and sharp movements on expiry day. Trade cautiously.