It was a tough week for the markets and Friday the 14th of February was unique in many ways. People celebrate the day as Valentine Day and it’s a day of red flowers, gifts and celebration. This time the markets were a sea of red with stocks hammered and butchered to levels which one could not even think of. Probably for the first time since the advent of covid in end-March 2020, one has seen new entrants to the stock market getting shaken so badly. This is part of learning and one must remember that the stock market is like a yo-yo and it has its ups and downs. It certainly is not a one-way street where prices just go up. BSESENSEX lost 1,920.98 points or 2.47% to close at 76,388.39 points while NIFTY lost 630.70 points or 2.68% to close at 22,929.25 points. The broader indices saw BSE100, BSE200 and BSE500 lose 3.51%, 3.97% and 4.65% respectively. BSEMIDCAP was down 7.71% while BSESMALLCAP lost 9.47%. In sectoral indices none ended in the green, reflecting all round selling and also a hint of panic. Markets lost on all five days of the week. 

The Indian Rupee regained some lost ground and was up 59 paisa or 0.67% to close at Rs 86.83 to the US Dollar. Dow Jones gained on three of the five trading sessions and lost on two. It was up 242.68 points or 0.55% to close at 44,546.08 points. 

In primary market news, the subscription is getting impacted with the poor performance of secondary markets. The issue from Ajax Engineering Limited was subscribed an overall 6.45 times with QIB portion subscribed 14.41 times, HNI portion subscribed 6.47 times and Retail subscribed a mere 1.93 times. 

Following this was the issue from Hexaware Technologies Limited which was subscribed an overall 2.79 times, entirely on the back of QIB participation. QIB subscription was 9.55 times. HNI and Retail portion were undersubscribed at 0.22 times and 0.11 times respectively. In what could be mentioned as surprising was the fact that even the employee quota was undersubscribed at a mere 0.33 times. Very clearly market sentiment is poor, there is no appetite for expensive or even marginally expensive issues and certainly not for offer for sale issues. It’s a wake up call for merchant bankers and one hopes they are listening. 

Lows made by the benchmark indices were at levels of 75,388.39 points on BSESENSEX and at 22,774.85 points on NIFTY. These would act as support and also pivots. A relief rally after five consecutive days of fall last week and eight consecutive days since the previous week, is overdue. Whether it happens on Monday or subsequently is immaterial, it is overdue. The mood in this pull back rally would be different for different people. Some would use it as an opportunity to sell on strength, some would use it to punt the upward move and some would wait for things to improve and see their portfolio regain lost ground. What should one do, depends entirely on how one views the rally. Nothing has changed, all that was expected has happened and there is nothing amiss. 

Mutual funds are sitting on a cash pile and do not know what to do with the money that comes their way. In the month of January there has been a small dip of Rs 1,500 cores on a base of Rs 40,000 crores in total SIP inflow. Not significant, but one hopes this is not a new trend and gathers momentum in the month of February. Inflation in the US has picked up and is not good news for those expecting further rate cuts. On the companies performance with results season over for the third quarter results, the expectation has been belied. Fewer companies have delivered stronger results compared to those producing average or below expectation results. The focus would now shift to the year end and annual results to see whether they can turn the corner and expectations. 

Coming to the markets in the week ahead, one should expect some sort of a relief rally or break in momentum of the fall at the bare minimum. FPI selling is the order of the day and there is nothing that has happened that could change their view all of a sudden. Expect their selling to continue and if it subsides or stops, it should be taken as unexpected. We are at crucial levels of support and this could be a short-term bounce. The strategy for the expected rally should be to look at those stocks which could lead the rebound, dabble in them with strict stop losses, and exit at first point of weakness when the rally looks like getting over. In terms of rebuilding portfolios, its some time away and could be done later. In terms of safety, the same lies only in large cap stocks, and money should be invested there only. 

Support as mentioned exists at the lows made last week and around 22,800-22,850 on NIFTY and at 76,000 on BSESENSEX. Resistance currently is at 23,250-23,300 and 77,200-77,350 respectively. This being crossed comfortably and maintained would be a subject matter for Expiry week. 

The key factor is to conserve cash and trade cautiously.

It was an eventful week at the markets post the announcement of the Union Budget on Saturday, the 1st of February. As expected, markets were weak on Monday and registered very sharp gains on Tuesday, when market participants apparently understood the budget. Thereafter it was a gradual decline and markets lost on the remaining three days. At the end of it all, when RBI cut interest rates on expected lines, markets lost on four of the five trading sessions and gained on one. BSESENSEX was up 354.23 points or 0.46% to close at 77,860.149 points while NIFTY gained 77.80 points or 0.58% to close at 23,559.95 points. The broader markets saw BSE100, BSD200 and BSE500 gain 0.22%, 0.26% and 0.28% respectively. BSEMIDCAP was up 0.39% while BSESMALLCAP gained 0.13%. 

The Indian Rupee was under a lot of pressure and lost 81 paisa or 0.94% to close at Rs 87.42 to the US Dollar. Dow Jones lost on three of the five trading sessions and gained on two. Friday was a bad day at Wall Street and Dow closed with weekly losses of 241.26 points or 0.54% at 44,303.40 points. 

RBI cut repo rates by 25 basis points to 6.25%. This cut has come after covid-19 began and is almost after five years. The last change was during May 20. The cut in repo rates was on expected lines and RBI is open to looking at rate changes in future on a need based manner and open to all possibilities. 

In primary market news, the week ahead sees two main board issues opening and closing during the week. The first of the issue is from Ajax Engineering Limited which opens on Monday the 10th of February and closes on Wednesday the 12th of February.  The price band is Rs 599-629. The company is India’s largest SLCM (self-loading concrete mixer) and the third largest in the world. The issue is entirely an offer for sale of 2,01,80,446 equity shares and would total Rs 1,269.35 crores. 

The company reported revenues of Rs 1,741.40 crores for the year ended March 24 and a fully diluted EPS of Rs 19.58. For the six months ended September 24, revenues were at Rs 769.98 while EPS was at Rs 8.79. There is seasonality in the business as during the first half activity slows down during the monsoon months. The PE band is at 30.59-32.12, which is comparable with machinery manufacturers. The issue may be subscribed with a medium to long term investment horizon.

The second issue is from Hexaware Technologies Limited which opens on Wednesday the 12th of February and closes on Friday the 14th of February. The issue is entirely and offer for sale and would raise Rs 8,750 crores in a price band of Rs 674-708. Readers would recall that just after covid began, in September 2020 Hexaware had delisted at a price of Rs 475. 

Revenues for year ended December 2023 were at Rs 10,380 crores while for the nine months ended September24 they were at Rs 8,820 crores. The company reported an EPS of Rs 16.41 for the year ended December 23 and Rs 15.10 for the nine months ended September 24. Based on the full year numbers, the PE band is 41-43. The company is a digital and technology services company with artificial intelligence serving financial services, healthcare and insurance, manufacturing and consumer, hi-tech and professional services, Banking, Travel and transportation industries under five broad services. Design and build, Secure and run, Data and AI, Optimize and cloud services. 

The valuations are a direct bearing on one’s take on the IT industry and what would happen in the US post Trump. Current valuation is higher than Mphasis and LT Mindtree while it is lower than Persistent and Coforge Limited. 

Take a call on IT and then invest.

Markets have witnessed the events unfold. There was a political news where elections were held for Delhi. The ruling party AAP was trounced and BJP swept to power winning 48 seats against AAP which was left with the balance 22. One saw almost all but one key leaders of AAP losing including the former CM Arvind Kejriwal. 

Coming to the markets in the week ahead, Monday’s opening and day’s trading would hover between the poor showing of Dow on Friday and the euphoria of BJP’s Delhi win after 27 years. Leaving these two events aside, the fact that FPIs continue to be sellers barring that one odd day in the month is a cause for concern as is the depreciation of the Rupee. On the tariff war front, while Canada and Mexico have put on hold all tariffs on USA and vice versa for 30 days, there seems to be no change in stance at the moment. In such a situation where our valuations continue to be expensive in the bulk of the market which is midcap and small cap, it continues to be a big cause for worry.

At a recent event held in Mumbai last week where many of the leading mutual funds were represented, the commentary coming out was not the best one would have expected when the audience represented financial advisors and mutual fund distributors. It was more or less a consensus that investment at current levels in the smaller space as represented by NSE500 which is a fair mix of the mid and small cap segments having a PE of 45 does not make investment advisable. Safety lies in the large cap segment. 

Whether this would change the minds of investors and inflows into mutual funds hereon is something which we need to watch carefully. The highs made on Tuesday were at 78,735.41 and at 23,807.30 on BSESENSEX and NIFTY respectively. These would act as crucial resistances in the short term.  If these are broken and sustained, we could see levels of up to 79,900 and 24,200 points. On the downside we have support at 77,000-77,250 and at 23,250-23,300 points. If these are broken we have support at levels of 75,650-75,800 and 22,800-22,850 points. In short, we are in a volatile market where we would trade in a broad trading zone and await a break out or a break down for the next course of action. 

The strategy would be to bet on the large cap and look at safety as the prime defense. It would be advisable to look at investing in the smaller cap stocks from a small basket of your liking. Also a key advice to new investors would be not to get carried away by the fact that a particular stock is available at a 25-40% discount or lower from its 52 week high. Such investing could lead to disasters.

Trade cautiously.