Market waiting for global cues to decide trend

By Arun Kejriwal

The week that ended on April 29 was full of both sided sharp moves. The week began with an expected fall, rose the next day, fell the next day and kept on alternating between gains and losses all through the week. At the end of the week, it had lost on three of the five days. What was eventful was the fact that Friday was the day of reversal where markets gained initially and in the last hour just cracked.

In the process the chart formation was that of an engulfing candle where both the previous days highs and lows were crossed and market closed lower. The week closed with small net change which does not convey the market movement. BSESENSEX lost 136.26 points or 0.24 per cent to close at 57,060.89 points while NIFTY lost 69.40 points or 0.40 per cent to close at 17,102.55 points. The broader markets saw BSE100, BSE200 and BSE500 lost 0.44 per cent, 0.56 per cent and 0.69per cent, respectively. BSEMIDCAP lost 1.14 per cent and BSESMALLCAP lost even more at 2.17 per cent.

The India Rupee gained 6 paisa or 0.08 per cent to close at Rs 76.42 to the US dollar. Dow Jones had yet another Friday selloff when it lost 939 points. This is the second consecutive Friday when it has lost 900 points plus. The week ended with losses of 834.19 points or 2.47 per cent to close at 32,977.21 points. Dow Jones had in the year to date lost 9.25 per cent and is very close to the 10 per cent level when the US gets worried about their markets. Nasdaq lost 4.17 per cent for the week and is now down 21.16 per cent on a year-to-date basis. It closed at 12,334.64 points and made a new low on Friday.

The US Fed meets on May 3-4 and would be raising interest rates. While a 50 basis points is a certainty, there is a growing feeling that the way inflation is shaping up, the hike could be even more.

The week ahead has a trading holiday on Tuesday and looking at the Dow on Friday, the opening of our markets would be gap down on Monday. With the Tuesday holiday and Fed meeting coming up, even lower prices would not attract investors or traders as they would be cautious. Expect markets to take a trend only post what the Fed does on Wednesday night.

April futures expired with the bears having it their way. The only saving grace was the fact that markets rallied on Thursday and allowed the bulls to recover some ground. The series ended with losses of 219.70 points or 1.26 per cent to close at 17,245.05 points.

In primary market news, we had two issues which opened and closed for subscription during the week. These issues were the first under the new guidelines which restricted funding to just one crore per individual. There was also the bifurcation of the HNI bucket into two segments of 5 per cent and 10 per cent with the first being 2-10 lakhs and the second 10 lakhs and over.

The first thought that comes to mind post the subscription is the fact that HNI subscription has cooled of significantly. Subscription is a mere 22.25 times and just 3.73 times in the HNI category respectively. The days when subscription began at a three-digit level and went up to 400 and 500 times are certainly a thing of the past. This has also reduced the premiums significantly as there is no cost of funding. While everything seems fine for the moment, stock exchanges have chosen not to give the break-up of the two buckets of HNI subscription for reasons best known to them. Through this article I would request SEBI to direct the exchanges to disseminate the information as it is in the interest of investors.

The issue from Campus Activewear Limited which had tapped the markets with its offer for sale of 479.50 lakh shares in a price band of Rs 278-292 was oversubscribed 51.75 times overall. The QIB portion was subscribed 152.04 times, HNI portion 22.25 times, Retail 7.68 times and Employee 2.11 times. In the 10 lakh plus category roughly one out of three applicants would get shares worth Rs 2 lakhs.

The second issue was from Rainbow Children's Medicare Limited which had tapped the markets with its fresh issue of Rs 280 crore and an offer for sale of 2.4 crore shares in a price band of Rs 516-542. The issue was subscribed 12.42 times with QIB portion subscribed 38.90 times, HNI portion subscribed 3.73 times, Retail portion subscribed 1.38 times and Employee portion subscribed 0.31 times. HNI applicants in the 2 lakh plus category would get full allotment. I believe it would take a few issues for investors to understand where they should apply going forward.

The week ahead sees Life Insurance Corporation of India Limited tapping the markets with its offer for sale of 22.13 crore shares in a price band of Rs 902-949. The issue would have its anchor on Monday and the issue would open on Wednesday and close on May 9. The issue is open for four days for subscription. This issue which would be the largest issue to ever hit the capital markets would raise about Rs 21,000 crore.

The issue has a reservation of 10 per cent for Policy holders which is the first time ever that such a reservation is being made. They are also entitled to a discount of Rs 60 per share. The Employee quota is also for 10 per cent and they along with Retail investors would get a discount of Rs 45 per share.

The issue which would have a market capitalisation of about Rs 5.92 lakh crore is priced at 1.1 times its EV or embedded value. This is in line with large, mature international insurance companies from China which have the size and scale of LIC.

The government is selling 3.5 per cent of the company and has given a commitment to investors that there would be no dilution of shares for a minimum of 12 months after listing. This one year holding period is enough to allow the share to establish its price and place in the capital markets.

Looking at the likely response, the opportunity that LIC has in the Indian markets, its growth over the last 22 years when privatisation took place and the fact that insurance is highly under-penetrated in India, offers great opportunity to investors looking at LIC. This is a must invest opportunity.

Coming to the markets in the four-day week ahead, they would be volatile and choppy. As mentioned early they would be under pressure on Monday when markets open. Going forward the key event would be the FED meeting for hiking interest rates which would be known to all on Wednesday night. Global markets would react to the same on Thursday morning. Looking at the trend and direction, markets are in a range bound movement where they tend to hit the lower and upper band every week. The band is 56,000-58,000 on the BSESENSEX and 16,800-17,400 on NIFTY. For markets to move in either direction they have to break out of these levels and then sustain the same. Currently we seem to be finding that tough.

However, this range bound movement is providing trading opportunities. How long this would last is debatable. I believe this is the week where markets will decide their trend one way or the other. Trade cautiously.

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

Source: IANS