Markets have turned bearish with key supports under pressure

NEW DELHI: Markets were under pressure in the week gone by and the optimism about markets and new highs in the festive season simply disappeared looking at the Israel-Hamas stand.

Markets lost on four of the five sessions and gained on just one session.

The continued hammering or selling by FPIs during the result season which has just begun and a fair spectrum of results declared, does not indicate any negativity in the results, even though the reason to be optimist is not present either.

At the end of the week, BSE SENSEX lost 885.12 points or 1.34 per cent to close at 65,397.62 points while NIFTY lost 208.40 points or 1.06 per cent to close at 19,542.65 points.

The broader markets saw BSE100, BSE200 and BSE500 lose 1.18 per cent, 1.20 per cent and 1.09 per cent respectively. BSEMIDCAP lost 1.31 per cent while BSESMALLCAP to show a different face actually registered gains, though minuscule of 0.04 per cent.

The markets have surrendered the momentum and the heavyweight stocks are just not moving up. The week ahead would see Reliance declare results on Friday post market closure. Whether that helps in boosting markets or not will be a million-dollar question. 

The Indian rupee gained 14 paisa or 0.17 per cent to close at Rs 83.12. Dow Jones had a torrid time and lost on three of the five trading sessions and gained on two. The losses were consecutively on the last three days of the week. Dow lost 543.01 points or 1.61 per cent to close at 33,127.28 points. In primary market news we saw the issue from IRM Energy Limited open and close for subscription.

The issue for 1.08 crore shares in a price band of Rs 480-505 was open from Wednesday (October 18) to Friday (October 20). The issue was subscribed 27.05 times with QIB portion subscribed 44.73 times, HNI portion subscribed 48.34 times and Retail portion subscribed 9.29 times.

There is one issue which would open on Wednesday (October 25) and close on Friday (October 27). The issue from Blue Jet Chemicals Limited is entirely an offer for sale by the promoters for 242.85 lakh shares in a price band of Rs 329-346.

The issue would garner Rs 840 crore. The company reported revenues of Rs 721 crore and an EBITDA margin of 30.39 per cent and PAT margins of 22.20 per cent. The EBITDA in absolute terms was Rs 219 crore and PAT was Rs 160 crore. The reported EPS for FY23 was Rs 9.23 and the PE multiple, price band is 35.64-37.49.

The company is into three business verticals where the largest is contrast media where it makes chemicals used during MRI and CT scan. This is the largest business vertical for the company and they have relations with the top four players in the vertical who control almost 78 per cent of the global market.

The second business vertical is making synthetic sugar sweeteners used across product categories such as beverages, toothpaste and even pharma. The third vertical is CDMO where they make value added products for pharma players across the globe. As the issue is an offer for sale, there would be no objects of the issue.

However, the company is in the midst of capacity expansion which will be up and running in the fourth quarter of FY24. This would raise the capacity from the present 1,100 KL to about 1,500 KL. They are also working on a larger capex which has started but would take about 18-24 months for completion which would take the capacity further higher to about 2,200KL.

The production of higher value add products would come from this expansion and costlier molecules would be produced. Share is attractively priced and offers good scope for returns to shareholders. The week ahead has a trading holiday on Tuesday.

This would restrict the trading week to just 4 trading sessions. Adding to the volatility in a truncated week is the fact that Thursday (October 26) sees October futures expire. The current value of NIFTY is ahead of the series currently open by a whisker.

The lead for the bulls is a mere 19.10 points or 0.10 per cent. The series had begun at 19,523.55 points. If I had to bet my money on either the bulls or the bears for taking the series, I would go with the bears. There is hardly any carry-forward lead and the present momentum is with the bears. Secondly, the ground reality of FPIs is negative with they being net sellers of approximately 16,176 crore so far in October.

Finally, the Israel-Hamas conflict seems to be getting elongated with no ready solution whatsoever. Coming to the week ahead, we have 4 trading sessions and series expiry leading to higher volatility. Bulls seem to have lost momentum and it's too soon how much pressure can be piled on. With levels of 19,200-19,250 looming large and after multiple supports in the recent past from these levels are under threat of breaking this time around.

The next level of support would beat closer to 18,800-18,850. Similar support would be at 63,050-63,200 on BSESENSEX. The strategy would be to sell on any rallies in the coming week and allow markets to find their own levels.

Being adventurous could be a liability. Buying should only be done if stocks are available really cheap. Simple approach would be to sell and buy.