Market volatility may lead to more correction in coming week

NEW DELHI: The week gone by was extremely volatile and choppy. We began with a correction. Then a corrective up move, followed by a sharp correction, yet another corrective up move and then yet another correction.

Though markets gained on two of the five trading sessions and lost on three, the intensity of the fall has shaken the markets. It appears the momentum is lost and probably enough signals are available to indicate some more correction in the coming week.

One normally associates Friday the 13th as an ill-omen. This time we had a double whammy where markets fell sharply on the 13th and then fell again the following Friday (March 15).

So, in short the 13th and Friday individually hit the markets quite sharply. BSESENSEX lost 1,475.96 points or 1.99 per cent to close at 72,643.43 points while NIFTY lost 470.20 points or 2.09 per cent to close at 22,023.35 points.

The broader markets saw BSE100, BSE200 and BSE500 lose 2.35 per cent, 2.6 per cent and 2.94 per cent respectively. There was worse to follow in BSEMIDCAP which lost 4.02 per cent and BSESMALLCAP which was down 5.91 per cent. Very clearly the beating in midcap and small cap was quite severe.

The Indian Rupee lost 14 paisa or 0.17 per cent to close at Rs 82.88 to the US Dollar. Dow Jones lost on two of the five sessions and gained on three. It closed virtually flat, down 8.38 points or 0.02 per cent to close at 38,714.77 points. What is becoming worrisome in the US is once again inflation, and with present levels, it appears that the rate cut would just get postponed.

Elections to the Lok Sabha have been announced and they will be held in seven phases beginning with the first phase being held on April 19. The remaining phases will be on April 26, May 7, May 13, May 20, May 25 and June 1. Counting would be held on June 4.

With the poll notification having been issued, the code of conduct is applicable with immediate effect and one would see political parties get to work on the business end of the elections.

Primary markets saw a lot of activity in the week gone by. We had three listings of equity and one of a road Invit, one other issue which saw its issue open and close for subscription, and one other issue which had opened for subscription but would close on Monday.

The first share to list was from R.K. Swamy who had issued shares at Rs 288. The listing price was at Rs 252, a discount of Rs 36 or 12.5 per cent. After a volatile day where the high and low was Rs 284.5 and Rs 248, the share closed debut day at Rs 263.25, a loss of Rs 24.75 or 8.59 per cent.

By the end of the week, the share recovered to close at Rs 279.40, a loss of Rs 8.60 or 2.99 per cent.

The other listing on Tuesday was from Bharat Invit, which had allotted units at Rs 100. The unit debuted at Rs 101.10 and closed on debut day at Rs 103.05, a gain of Rs 3.05 or 3.05 per cent.

This instrument has some unique features as all the underlying assets are of 'HAM' projects where there is no risk of toll collections. Second, the income and expense of the trust is linked to a floating rate of interest which makes the yield insulated from rate fluctuations. The Invit closed on Friday at Rs 103.40 a gain of Rs 3.40 or 3.40 per cent.

The second listing was from JG Chemicals Limited which listed on Wednesday and had a tepid listing.

The debut price was Rs 211 for the company which had issued shares at Rs 221. The loss was Rs 10 or 4.52 per cent. The share closed day one with further losses at Rs 184.80, a loss of Rs 36.20 or 16.38 per cent. It regained some ground over the next two days and closed Friday at Rs 194.85, a loss of Rs 26.15 or 11.83 per cent.

The third listing was from Gopal Snacks Limited which happened on Thursday (March 14). The company had issued shares at Rs 401, and the share debuted at Rs 350, a loss of Rs 51.

By the end of the day, the share gained some ground and closed at Rs 360.05, a loss of Rs 40.95 or 10.21 per cent. On Friday, the share recovered some ground and closed at Rs 378.70, a loss of Rs 22.30 or 5.56 per cent.

The issue from Popular Vehicles and Services Limited, a two-wheeler, three-wheeler, four-wheeler and commercial vehicles distributor from South India tapped the capital markets with its fresh issue of Rs 250 crore and an offer for sale of 1,19,17,075 equity shares in a price band of Rs 280 to 295.

The issue had a tough time and managed to get subscribed on the basis of response from QIBs. The issue was subscribed 1.24 times overall with QIB portion subscribed 1.92 times, HNI undersubscribed at 0.67 times and Retail portion subscribed 1.07 times. There were 1.35 lakh applications.

The issue from Krystal Integrated Services Limited opened on Thursday (March 14) and would close on Monday (March 18). The issue consists of a fresh issue of Rs 175 crore and an offer for sale of 17.5 lakh shares in a price band of Rs 680 to 715.

At the end of the second day of bidding, the issue was subscribed 0.72 times with QIB portion subscribed 0.57 times, HNI portion subscribed 1.19 times and Retail portion subscribed 0.6 times. There were 32,989 applications till the end of day two.

Primary markets on the main board seem to have reached a level from where they are headed downhill. Performance of newly listed shares is not making money for investors who are allotted shares.

Subscription levels have dropped significantly and when issue after issue lists and trades at a discount, it's time that merchant bankers and promoters take a hard look at their asking price. While one may always argue that investment in primary issues is not about first day exit, but that is what it has all become about.

More than 50 per cent of investors on day one change hands and it's only the new set of investors who join on day one, who have any sort of holding period in the company going forward. If sanity does not come in sooner than later, we would again see a large period of lull where there are no issues tapping the main board.

The week ahead would be choppy and volatile and would trade with a negative bias. The movement over the previous week has seen markets getting shaken and losing momentum.

While the bounce on Thursday made people believe that the worst is over, the fall on Friday has caused concern once again. It makes sense to lighten one's exposure in the markets as we approach the end of the financial year 2023-2024 and enter the election period as well.

There is multiple resistance between the current levels of the indices on the way upward till the top of 74,245 points on BSESENSEX and 22,526 points on NIFTY, and we have just one support on the downside around 21,825-21,860 points on NIFTY.

Last Wednesday we touched a level of 21,905 points before we bounced on Thursday. The safety factor is not too big. If this were to break we would have a newer target of around 21,450-500 points which could cause a sharp correction in next to no time.

The strategy for the week ahead would be to remain in large cap stocks and use any rallies in the market to sell midcap and small cap stocks. There would be no policy statements going forward as the poll notification has happened and results for the fourth quarter and year ended March 24 are roughly four weeks away.

Brace for a volatile week and use rallies to sell and only sharp dips to do select purchases in the large cap space. Trade cautiously.