Market momentum signal possibility of new highs this week

MUMBAI: Markets last week opened with a bang and gained sharply on the first two days. The rally seemed to have then fizzled out but a sharp rebound on Friday seems to have provided ammunition for the bulls. The ensuing jobs data on Friday night followed by the strong rally in the US, rings hope for a probable new high next week in India.

Markets gained on the first two days followed by Friday, while they lost on Wednesday and Thursday. BSESENSEX was sort of flattish for the week gaining 45.42 points or 0.07 per cent to close at 62,547.11 points while NIFTY gained 34.75 points or 0.19 per cent to close at 18,534.10 points. The broader markets saw BSE100, BSE200 and BSE500 gain 0.32 per cent, 0.46 per cent and 0.64 per cent respectively. BSEMIDCAP was up 1.83 per cent while BSESMALLCAP was up 2.40 per cent.

The Indian Rupee gained 28 paisa or 0.34 per cent to close at Rs 82.30 to the US Dollar. Dow Jones had a volatile week and gained on three of the five trading sessions. The gains over the last couple of days, changed the mood in the US. Job data on Friday evening was very positive and markets there gained over 2 per cent. At the end of the week, Dow gained 669.42 points or 2.02 per cent to close at 33,762.76 points. The next FED meeting due in the following week between June 13-14 is widely expected to keep interest rates unchanged.

RBI meets between June 6-8 for its bi-monthly MPC meeting to review interest rates. Looking at economic data on GDP and inflation, it is widely believed that interest rates would remain at status quo. Confirmation of the same would result in markets saluting the event and outcome and could see the bulls stepping on the accelerator.

After a fairly long lull in the primary markets, we have an issue opening next week. Ikio Lighting Limited is tapping the capital markets with its fresh issue for Rs 350 crore and an offer for sale of 90 lakh equity shares in a price band of Rs 270-285. The issue opens on Tuesday (June 6) and closes on Thursday (June 8). The company had prior to the IPO reorganised its business and acquired group companies and merged all of them under one roof through subsidiaries.

The company's primary business is manufacturing LED lighting solutions and it focuses on providing low energy LED products to help India meet its sustainability goals. The company is an ODM player and supplies to large players who then distribute the products under their brand name. The largest customer for Ikio is Signify Innovations India Limited, erstwhile Philips Electronics India Limited.

The company has its manufacturing plants in Haridwar and Noida and is further expanding in these regions. On a restated proforma consolidated basis the company reported revenues of Rs 333.99 crore for the year ended March 22. Its profit after tax was Rs 50.51 crore and the EPS was Rs 7.77. For the nine months ended December 22, revenues increased to Rs 332.79 crore and profit after tax was Rs 51.43 crore. The EPS was Rs 7.90 on a non-annualised basis.

The objects of the issue are debt repayment of Rs 50 crore and investment in the company's subsidiary of Rs 262.87 crore. Based on the restated pro forma consolidated basis, the PE price band is 34.75-36.68 based on the year ended March 22.

Looking at the nature of the business, it is highly competitive and has a pricing overhang as it supplies to a dominant OEM player. Going forward, the margins could be under pressure as the company looks to scale up with substantial investment in new capacities. One needs to take a measured call for investment in the above company.

The week ahead has the RBI meeting for its policy review meeting. While the outcome here is more or less assured, markets would be focussed on achieving new highs which came within a whisker last week. The all-time highs were made on December 1, 2022 on a closing basis and an intra-day basis. These levels were 63,583.07 and 63,284.19 points on BSESENSEX and 18,887.60 points and 18,812.50 points on NIFTY. Last week we made intraweek highs of 63,036.12 points on BSESENSEX and 18,662.45 points on NIFTY. With FPIs being big buyers during May 23 and having invested Rs 43,838 crore, it appears the tide is turned and a new high would happen sooner than later.

In the week ahead, the first resistance would be this top made last week at levels of 63,036.12 points and at 18,662.45 points. This would be followed by the all-time highs at 63,583.07 and 18,887.60 points. On the support side, markets have strong support at 18,300-18350 levels on NIFTY and at 62,025-62,175 levels on BSESENSEX. If these are violated, the next levels would be at 18,000-18,050 or 61,150-61,300 levels.

It appears looking at Indian markets and the mood here and also global cues, we are well set to witness new highs in the coming week. Brace yourselves for action.