Markets at New Highs, Time To Introspect

Markets began the new calendar year on a disappointing note and were down for the first three trading days. The remaining two saw a sharp rebound and not only recovered lost ground but helped the markets post gains for the week and start the New Year on a positive note. The BSESENSEX gained 97.02 points or 0.28% to close at 34,153.85 points. NIFTY gained 28.15 points or 0.27% to close at 10,558.85 points. The broader markets gained more and the BSESMALLCAP gained 2.41%.

Incidentally the benchmark indices closed at record lifetime highs and the mood on Dalal Street has turned positive once gain after some sort of hiatus. Dow Jones gained an impressive 576.65 points or 2.28% to close at yet another lifetime high of 25,295.87 points. Very clearly Dow is on a roll and is helping global markets as well.

Crude oil prices have been rising and are becoming a cause of concern. While till now there is no panic but if they start rising any further you could see hot money entering crude futures, squeeze the shorts and see an unnatural rise as well. India could be a big sufferer of this.

The Union budget is to be presented on the 1st of February 2018 and it would be interesting to see what stand the government takes on the slowdown in GDP. This would be the last full budget of the government as they have the general elections for the Lok Sabha due in April-May 2019 and hence only a vote on account would be presented.

It is widely believed that there would be sops for the common man and this would come at the cost of raising resources through new measures. Further the spend on infrastructure would be increased to kick start the economy and help in providing jobs and improving the GDP. Being from the market the key question that is doing the rounds is whether LTCG or long-term capital gains would be brought back. This is a debatable point and one could argue endlessly on the same. One point is very clear as to why should a large section of the well to do end up paying no taxes simply because they have earned money from the markets. Its food for thought and would be discussed in the immediate future. There would be checks and balances and exemptions to the mutual funds and so on. I strongly believe that some sort of tax on this account is around the corner and contrary to popular belief may not hit the markets very badly. More of it sometime from now.

The primary market which a great year 2017 is off with a bang right at the beginning. The first issue for the year is from Apollo Micro Systems Limited. The company is tapping the capital markets with its fresh issue to raise Rs 156 crs in a price band of Rs 270-275. There is a discount of Rs 12 for retail investors and eligible employees. The company is an electronic, electro-mechanical, engineering design, manufacturing and supplies company. It designs and develops high performance, mission and time critical solutions for defence, space and home and security. It would be appropriate to state that the company is a critical mid-size ‘Make in India’ for defence applications. The issue is being offered at a price earnings multiple of 19.94 to 20.31 times. The business is working capital intensive and the major object of the issue is raising funds for working capital. The issue opens on Wednesday the 10th of January and closes on Friday the 12th of January.

There are a couple of roadshows likely to be held in the coming week as well. It appears that we could see about 8-10 issues during the month and then a small break for the budget before the same begins again. Very clearly fund raising will be on an accelerated mode in the year 2018. This is the case with the main board while in the SME segment the activity would be even more.

Markets this week would be volatile because we are at all-time highs and global cues as well. The situation would be further accentuated with Dow also at lifetime high and having recorded sharp gains last week. Trade cautiously.

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