Tough times ahead, trade cautiously

Markets were under downward pressure in the week gone by and lost on four of the five trading sessions. BSESENSEX lost 1,774.93 points, or 3.02 per cent, to close at 57,011.74 points, while NIFTY lost 526.10 points or 3.00 per cent to close at 16,985.20 points. The broader indices saw BSE100, BSE200 and BSE500 lose 3.21 per cent, 3.22 per cent and 3.18 per cent, respectively. While BSEMIDCAP was down 4.53 per cent, BSESMALLCAP lost 2.75 per cent. In sectoral indices, just BSEIT and BSETECK saw upticks while everything else was down. The BFSI space was badly hit and many of the stocks in this sector suffered huge losses. The constitution of NIFTY is heavily skewed in favour of this sector and could weigh heavily in the coming week if markets and particularly the banking and NBFC space is under pressure.

Dow Jones lost 605.55 points or 1.68 per cent to close at 35,365.44 points. The Indian Rupee was under pressure and lost 32 paisa or 0.42 per cent to close at Rs 76.08 to the US Dollar.

The primary markets saw three listings during the previous week. The first of the block was Tega Industries which saw its share close on day one at Rs 725.50, a gain of Rs 272.50 or 60.15 per cent. By the end of the week, the gains were reduced and the share closed with gains of 35.62 per cent. The second share to list was Anand Rathi Wealth Limited which had issued shares at Rs 550. Shares closed on day one at Rs 583.50, a gain of Rs 33.50 or 6.09 per cent. By the end of the week, these had reduced significantly to close at Rs 567.65, a gain of 3.21 per cent. The third share to list was Rategain Travel Technologies Limited which had issued shares at Rs 425. The share had a very poor listing and saw its shares close day one at Rs 340.50, a loss of Rs 84.50 or 19.88 per cent down. This is indeed a poor listing and probably one of the few listings which has seen such a sharp fall on day one.

There is one IPO from CMS Info Systems Limited which opens in the coming week. The size of the issue which is entirely and offer for sale is Rs 1,100 crore. The price band is Rs 205-216. The issue opens on Tuesday and closes on Thursday. The company is into the business of cash management and roughly 2/3rd of its revenues come from cash management services. The company had reported a net profit of Rs 169 crore on revenues of Rs 1,306 crore for the year ended March 2021. The fully diluted EPS for the same period is Rs 11.09. The PE for the stock is 18.49-19.48 times. Valuations look decent and should offer appreciation for investors investing with a medium-term outlook.

Quite a few issues would be listing next week. Prominent among them would be the issues from Shriram Properties Limited, C.E. Infosystems Limited, Metro Brands Limited and Medplus Health Services Limited.

Markets have been at the receiving end on three broad reasons. The first one is on continued selling by FII's and they seem to be doing so now for over two months. The second is the fact that the US FED has announced the taper and the rate hikes that would happen in calendar year 2022. Global markets are worried about the same and this was reflected the way the Dow Jones reacted last week. Thirdly the scare about the new variant, Omicron, seems to be unnerving various investors globally. Its not the number of deaths that have happened but the way the number of cases is rising rapidly across many countries. It becomes that much more important for citizens to observe social distancing and get themselves vaccinated.

Markets for the week ahead are very critically poised. The degree of comfort on NIFTY is just about 200 points away. Considering the fact that we lost over 250 points on Friday, this means less than a day's fall. While this may or may not happen in a day, the possibility exists. One should be prepared for it. In case the markets go below this level and fail to recover, the fall could get precipitated in the coming days. One therefore has to be prepared to refrain from going long in the markets at current levels and play the market as it happens on a daily basis. In case we do not fall and markets recover, the rally should be used to book profits and wait for the fall which would come. Currently a sharp turnaround looks unlikely.

In conclusion, use market rallies to sell and wait for markets to decide their downward direction if any. The level required for a fall is a mere 200 points and may happen faster than one imagines. Therefore, play cautiously and avoid the temptation of attractive prices and bottom fishing.