Markets need to consolidate after being choppy

Markets last week took their toll and many predictions just fell by the wayside. The week was eventful as well, but truly speaking markets have a mind of their own.

BSESENSEX lost on the four days of the weeks into expiry, and had a fantastic day on the first trading day, of the new October futures series. At the end of it all, BSESENSEX lost 672 points or 1.16 per cent to close at 57,426.92 points while NIFTY lost 233 points or 1.34 per cent to close at 17,094.35 points. The broader markets saw BSE100, BSE200 and BSE500 lose 1.42 per cent, 1.58 per cent and 1.51 per cent respectively. BSEMIDCAP lost 1.65 per cent while BSESMALLCAP was down 1.25 per cent.

The Indian Rupee was under pressure and lost against the US dollar. It was down 35 paisa or 0.43 per cent to close at Rs 81.34 to the US dollar. Dow Jones continued its downward move and lost on 4 of the five trading sessions. It closed with losses of 865 points or 2.92 per cent at 28,725.41 points. On Friday it closed almost at the new 52 week low of 28,715.85 points. For the year to date, Dow is down 20.95 per cent.

RBI in its monetary policy meeting held during September 28-30th, raised Repo rates by 50 basis points to 5.90 per cent. These are the highest rates over the last three years. The rate hike was on expected lines. It has pegged inflation at 6.7 per cent and expects the growth rate to be around 7 per cent.

After inflation in the US at record highs, the next to be affected is Germany with new inflation data for September showing that it has entered into double digit at 10 per cent. The Russia-Ukraine conflict which has entered its eight month period seems to have hit different countries in different manners.

September futures expired on a weak note and the series lost 704.35 points or 4.02 per cent to close at 16,818.10 points.

The low made by the benchmark indices during the previous week were 56,147.23 points on BSESENSEX and 16,747.70 points on NIFTY. Friday saw a huge recovery from the lows and markets went on to rise magnificently. What could be the cause of the same is still debatable. RBI announced its policy on Friday which was on acceptable lines and comments by the RBI Governor were positive. While this was good news, the fact that FPI's sold on Friday and ended the month with sales of Rs 18,300 crore was not good news. Domestic institutions were net buyers of Rs 14,120 crore. Interestingly, FPI's were net buyers only in August and have been net sellers for quite some time. NAV propping used to be a phenomenon in earlier years, but now makes no difference.

In primary market news, shares of Harsha Engineers International Limited who had issued shares listed on the bourses on Monday the 26th of September. Shares which were issued at Rs 330 saw the discovered price at Rs 444 and touched a high of Rs 527.60. They fell from there and closed day one at Rs 485.90, a gain of Rs 155.90 or 47.24 per cent. By the end of the week, the share saw some profit taking and closed lower at Rs 461.50, up Rs 131.50 or 39.84 per cent.

Electronics Mart India Limited is tapping the capital markets with its fresh issue of Rs 500 crore in a price band of Rs 56-59. The issue opens on Tuesday, the 4th of October, and closes on Friday, the 7th of October. The company is into the business of consumer durables and electronic retailing in India. It was historically present in the unified state of Andhra Pradesh, now bifurcated into Andhra Pradesh and Telangana. As part of its expansion strategy, it has entered into the NCR region.

Coming to the revenues of the company, they are back on track and have recovered from the Covid-19 impact. The company clocked revenues of Rs 4,353 crore for the year ended March 2022. This has improved in the first quarter of FY23 to Rs 1,410 crore. In terms of PAT the company recorded a profit after tax of Rs 103.9 crore for the full year and Rs 40.65 crore for the first quarter. The EPS for the year ended March 22 was Rs 3.46. The price earnings band at this EPS is 16.18 - 17.05. The performance in the first quarter has improved significantly and the EPS is Rs 1.36. Though there is seasonality in the business with the first and third quarters being the best for the company, this would get neutralised with new stores opening aggressively in the next 18 months.

The rights issue from Suzlon for Rs 1,200 crore opens on Tuesday the 11th of October. The Chairman and Managing Director of the company, Tulsi Tanti, passed away on October 1. In my stock market experience of close to four decades, I do not recall any incident like this where the key person passes away in the midst of the fund raise. Tragic incident. I believe that though the loss is irreparable, it will not have any impact on the company.

Markets have a mid-week holiday on Wednesday on account of Dussehra. Midweek holidays normally break the momentum of markets as the holiday is India centric and world markets are open. They will be choppy and volatile to say the least. They are now trying to find their feet and establish a short-term bottom from where they could gather steam.

Key resistance levels would be 56,550-56,850 on BSESENSEX and 17,250-17,350 on NIFTY. This would be the first hurdle that markets need to cross, and then sustain these levels for any revival in the market to be meaningful. Post this being done successfully, the next targets would be 57,750-58,000 and 17,650-17,750. On the support side, last week's lows of 56,150 and 16,750 points should act as solid support. Even though global markets are in a turmoil, one believes that India should hold. The strategy should be to buy on dips closer to the support levels.