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.
