Markets were super volatile on expected lines last week. Wednesday saw the Union Budget 2023-24 being presented and the Adani pack kept markets guessing throughout the week. Cues from Dow did not help either as markets in the US were more or less flat with a negative bias. At the end of the volatile week, we did see sharp gains on expected lines with our markets gaining on every day of the week, with the best reserved for Friday. BSESENSEX gained 1,510.98 points or 2.55% to close at 60,841.88 points while NIFTY gained 249.70 points or 1.42% to close at 17,854.05 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.24%, 0.41% and 0.52% respectively. BSEMIDCAP was up 0.45% while BSESMALLCAP was up 0.86%. 

The Indian Rupee lost 31 paisa or 0.38% to close at Rs 81.83 to the US Dollar. The US FED raised interest rates by 25 basis points to a band of 4.50-4.75%. Indications post the announcement say that while the rate hike is not finished as yet, the pace which has slowed down is likely to remain at lower or similar levels. A couple of rate hikes going further seem on the cards. Employment data during the week were great from the country’s perspective, but bad from inflation and slowing down of rate hikes perspective. Dow Jones gained on two of the five trading sessions, losing on the remaining three. Dow Jones lost 52.07 points or 0.15% to close at 33,926.01 points. 

The Union Budget was presented on Wednesday and markets saw a huge swing on that day. The intraday high and low on BSESENSEX was 60,773 and 58,816, a difference of 1,957 points. The net change at the end of the day was a positive 159 points. Similarly, on NSE the intraday high and low was 17,972 and 17,353 points, a difference of 619 points. The net change at the end of the day was a negative 46 points. While the budget could be said to be well thought out, pragmatic and certainly one which had growth written all over it. Despite the fact that next year the country sees general elections being held, it stayed away from populism and chose to reduce the fiscal deficit as a percentage of GDP compared to the -previous year. 

There is one piece of confusion which hit shares of INVITS AND REITS quite badly. Some confusion has crept in where when a loan taken by a subsidiary or a step-down subsidiary is returned to the parent, the repayment would be taxed. A loan taken is normally to be repaid and is in the nature of a business transaction. The only difference is the rate of interest. The interest paid is taxed in the hands of the recipient. Why this new clause is not quite clear. One could be sure that the clarification due would come as non-repayment could not be the intention. 

The Adani Enterprises Limited FPO was fully subscribed without any change in issue price whatsoever. Family offices of leading HNI’s helped in subscribing the issue, with the HNI portion subscribed over 3.32 times and the overall issue 1.12 times. The management of the company post the satisfactory closure of the FPO, chose to withdraw the same and unblocked the money that was paid towards subscription. The withdrawal of the issue post successful completion was a bold step by the management simply because it salvaged huge money for investors from a share which had become less than half in value during the time. 

RBI, the regulator has assured that the banking system is fully compliant and exposures to the Adani group are within norms. Similar assurances have been also made by SBI and LIC who are lenders to the Adani group. Market regulator SEBI has also assured that all is well without naming the group. The finance minister has stated that there would be no impact of the FPO being cancelled on the country or its image. It also stressed that regulators will do their job and that they are independent of the government. All these measures will help in instilling confidence in the market and it could be said that the group shares would stabilise in the coming week particularly the recently acquired cement companies and AEL the company which had launched its FPO. There would be volatility but we would see the shares finding stability.

Markets recovered more than the losses they had suffered in the previous week. However, the broad range that it has been trading in remains intact. For there to be a sharp up move it needs to break out of previous resistances made and move up. Crucial levels for the markets are 61,343 on BSESENSEX and 18,265 points on NIFTY being the high points that need to be crossed and then sustained. The major support on the lower side would be at 17,000-17,200 on NIFTY. These would correspond to 57,250-57,850 on BSESENSEX. These levels have moved down as on Budget Day the intraday lows made were 58,816 and 17,353 points. While these levels would act as the first level of support, the final levels would be the levels mentioned earlier. 

The strategy for the week ahead would be to allow and expect volatility to reduce or subside as the mega event of the budget is over. While there were not too many expectations, the biggest positive fact still remains that the election year budget was not populist. With the FED hike also out of the way, US markets are expected to gain some ground in the coming week. Expect some up move with profit taking as the resistance zone as mentioned. Use the band to generate profits. 

Trade cautiously.

Markets began the week on a positive note with gains on Monday followed by a flattish Tuesday. Wednesday saw sharp corrections for reasons best unknown and then a sharp decline on Friday, post the Republic Day trading holiday which saw shares fall across the board led by the Adani pack. As a result of all of this, markets broke crucial support levels as well. This indicates that in the immediate short term we may see only corrective rallies while a sharp fall cannot be ruled out. BSESENSEX lost 1,290.87 points or 2.13% to close at 59,330.90 points while NIFTY lost 423.30 points or 2.35% to close at 17,604.25 points. The broader indices saw BSE100, BSE200 and BSE500 lose 2.47%, 3.09+% and 3.09% respectively. BSEMIDCAP was down 2.66% while BSESMALLCAP lost 3.51%.
The Indian Rupee lost 40 paisa or 0.49% to close at Rs 81.52 to the US Dollar. Dow Jones gained on all five days of the week, with Friday being more of a flattish day. It gained 602.59 points or 1.81% to close at 33,978.08 points.
January futures expired on Wednesday the 25th of January. They were under pressure on the last day and lost 299.05 points or 1.64% in the series. They closed at 17,891.95 points. The new February series began with losses of 286 points on the very first day of trading. A large part of the blame for the weakness can be attributed to the sharp fall in prices of Adani group shares led by Adani Enterprises which is in the midst of its follow-on offer of Rs 20,000 crs. This issue opened on Friday the 27th of January and would close on Tuesday the 31st of January.
The street attributes the same to a report from Hindenburg on Adani Enterprises. This attack by so called Hindenburg, is from the US based investment firm that specialises in activist short selling. Very clearly there is a vested agenda and the Adani group has clarified on the allegations made. The fate of the FPO still remains unclear which closes on Tuesday the 31st of January. The price band is Rs 3,112-3,276. Half the amount is to be paid on application and balance on call which would come much later. For retail applicants there is an upfront discount of Rs 64 available. The stock of Adani Enterprises closed at Rs 2,762.15 on Friday. The difference between the closing price and the floor price is Rs 350 and to expect that investors would apply in the FPO would be naïve when shares are available cheaper in the market than the FPO. At present levels, the floor price of the share and market price being far away, a reduction in price seems the only alternative if the issue is to be subscribed to. This outcome may happen only on Tuesday as there is no other instance of price being reduced midway through an issue, but only at the end.
The company or the Adani group has intimated that they would reply to the questions asked by the activist fund after the FPO is over. This would ensure that the panic in the share subsides and normalcy returns. Expect the share to stabilize over the next couple of days as markets look to the next course of action on the revised pricing front. For the records, the RHP states that the company may reduce the offer price by up to 20% from the floor price.
The week ahead sees the budget being presented on Wednesday the 1st of February. We are quite used to seeing or hearing or talking about a pre-budget rally. This time nothing of the sort has happened whatsoever. Further with just one day of trading post futures expiry, positions in the market are quite low and there is no clarity on market trends. Friday’s trading ensured that the last bull also probably squared his position and was waiting on the side-lines.
In such a scenario, with the last full budget before the general elections due in 2024, the FM has to deliver. No great expectations. She has the numbers behind her in terms of revenues from GST, corporate and individual income tax, and an economy which is fairly stable. While inflation and rising interest rates have hit the world, we are no exception either. However, we are better off than most of the world. She needs to address the issues of the salaried class and middle income who desperately need some relief on standard deduction and basic exemption limit. Some focus on PLI schemes extension and their enlargement, and the political direction to woman empowerment and child development. If all of this is done with the fiscal deficit kept under check, the budget would be hailed.
Having said what can be done, is done, What next? Markets will respect the presentation of the budget and rally. The fact that our markets are richly valued in the present context cannot be denied. There is outflow from our markets to some other markets happening. With a budget leading to growth being delivered, our aim to become a 5-Trillion economy in 2024-2025 would be achievable.
The strategy for the week would be to allow markets to move on their own for the first two days of the week. Post the budget, take positions if the FM delivers, on the long side. There is hardly much downside left at current levels. Crucial levels for the markets are 61,343 on BSESENSEX and 18,265 points on NIFTY being the crucial high points. With levels of 59,625-59,675 on BSESENSEX and at 17,760-17,795 on NIFTY acting as strong support on the lower side so far, being broken on Friday, new levels would be between 17,000-17,200 on NIFTY. These would correspond to 57,250-57,850 on BSESENSEX.
The downside levels mentioned above are medium term targets and may not happen immediately until and unless some disaster hits markets post budget. Keep your fingers crossed for the time being.