The week gone by was dramatic in more ways than one. Markets lost on the first four days of the week and extended losses for five consecutive days before a complete turnaround happened on Friday, which was the first day of the August futures series. Incidentally the Union Budget was declared on Tuesday and markets were on a losing streak before and after the announcement. Losses in the first four days of the week were covered and converted from negative to positive by much more than the losses. The gains on Friday were 1,292 points on BSESENSEX and 429 points on NIFTY. At the end of the action packed week, BSESENSEX ended with gains of 728.07 points or 0.90% while NIFTY gained 303.45 points or 1.24% to close at 24,834.35 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.65%, 1.83% and 1.92% respectively. BSEMIDCAP was up 3.13% while BSESMALLCAP was up 3.45%. The week ended with gains in one trading session and losses in four sessions. FPIs incidentally bought on Monday and Friday and were sellers on the remaining three days. 

The Indian Rupee lost seven paisa or 0.08%. It closed at Rupees 83.73 to the US Dollar. Dow gained on three of the five trading sessions and lost on two. It gained 301.79 points or 0.75% to close at 40,589.34 points. One wonders whether the US markets follow India or vice-versa. However, one thing is very clear that there is a corelation between the two and that the same is very close. On Friday we saw a sharp rally in Indian bourses and that reversed the losses for the week and enabled markets to close in the positive. The same happened in the US as well with Dow gaining 654 points on Friday. This would be something which should be watched closely going forward. 

Tuesday the 23rd of July saw the Union Budget being presented for the financial year 2024-2025. The Union Budget made special mention of the stock markets which have been doing very well over the last eight months or so. In poetic justice it had a little for everything in the market. The tax on long term capital gains tax was raised to 12.5%. Similarly short-term capital gains tax was raised to 20%. STT or securities transaction tax on F&O has been doubled. Finally, the incidence of tax on buyback of shares which was earlier on the company, has now been logically shifted to the individual taxpayer and would be treated as long term capital gains tax. This last provision corrects the earlier illogical tax on the company. It also throws open the possibility of promoters and companies using buybacks as a way to reward shareholders and one would see many companies using this as a way of rewarding shareholders. This would help in improving earnings of companies, increasing promoter’s shareholding and also reducing floating stock of the company. A win-win for all concerned. 

Besides the markets, the budget had a little for many different stakeholders. Farmers, employment, skilling of citizens, infrastructure, industry and salaried class were all covered. There is relief for the bottom of the pyramid taxpayer with benefits of Rupees twenty five thousand in tax relief and marginal benefit in the lower tax slabs as well. Customs duty on gold and silver has been brought down to 6%. This would be a big blow to the smuggling of gold which had become rampant with quite a few people smuggling small quantities as couriers which included them carrying within their body. One broad theme which could play out as one of the most favoured sectors, post budget, is the affordable housing sector. Companies involved in real estate dealing with affordable housing, housing finance companies providing loans and even NBFCs and banks in this segment would become the flavour of the year. It’s a big segment and one would have to pick and choose the best from a big pool of companies. From an overall point of view, the best part of the budget was that against popular belief and perception, this was not a populist budget and this saw markets heave a sigh of relief. One did not see freebies galore being announced.

Thursday the 25th of July saw July futures expire. The series saw gains of 361.70 points or 1.50% to end at 24,406.10 points. It was an action packed series which saw new highs being made repeatedly and culminating with the presentation of the Union Budget. 

In primary market news we had the listing of Sanstar Limited which had issued shares at Rs 95 list on Friday the 26th of July. The share hit a high of Rs 127.68 after debuting at Rs  106.40 on BSE. The share closed the day at Rs 115.09, a gain of Rs 20.09 or 21.15%. 

There is one IPO from Akums Drugs and Pharmaceuticals Limited which is opening its issue on Tuesday the 30th of July and closing on Thursday the 1st of August. The issue consists of a fresh issue of Rupees 680 crores and an offer for sale of 1,73,30,435 equity shares in a price band of Rs 646-679. Because of INDAS accounting rules, the company had to make provisions on account of put and call options which resulted in significantly lower profits than actual. Post the IPO, these provisions would be reversed which would then reflect the true performance of the company. 

The company is a CDMO player and is currently the 25th ranked player globally. They have large capacities in Uttarakhand and had acquired the facilities of an earlier listed player from that area, Parabolic Drugs Limited. While the integration is complete, they still need to ramp up these facilities along with the facilities of the company, quite significantly. This ramp up is likely to take anywhere between 9 to 18 months before the potential is reached. Based on the numbers of the company and the fact that the balance sheet and profit and loss for the last reported accounts of March 24 include the provisions as stated above, it makes no sense to discuss them here as the PE is negative. 

Considering the prospects of the pharma industry, its nature of being a defensive sector and our markets currently grappling with high and unsustainable valuations, this issue looks decent from a medium term investment. There could be listing pop as well. Investment with a medium-term objective is warranted for reasonable returns.

In the week ahead we will have many more companies having their roadshows and then opening their issues. Two of them have announced their dates but not the price band. These are the issues from Ceigall India Limited which would open on Thursday the 1st of August and close on Monday the 5th of August. The issue consists of a fresh issue of Rupees 684.25 crores and an offer for sale of 141.74 lakh shares. The price band would be publicly announced on Monday morning. The company is an infrastructure company making roads.

The second issue is from Ola Electric Mobility Limited which will be opening on Friday the 2nd of August and closing on Tuesday the 6th of August. The issue consists of a fresh issue of Rupees 5,500 crores and an offer for sale of 8.49 crore shares. The price band would be advertised on Monday the 29th of July. The company has a market share of 50% in the EV scooter space and it reported revenues of Rs 5,243 crores for the year ended March 24 against Rs 2,782 crores for the previous year. Losses for the period rose to Rs 1,584 crores against Rs 1,472 crores. The issue would be an interesting one with a lot of activity considering that the EV space is exciting and in the news. Further this would be the first company from this space in India who is also into manufacture of batteries and cells for the EV.

Coming to the markets in the week ahead, one would expect them to consolidate around these levels after the great start to the August futures series on Friday. Valuations are a concern currently and the results in the quarter so far are not the best that one expected or have seen. The growth seems to be slowing for sure and therefore future valuations are getting that much more expensive. Secondly, there are no short to medium term triggers or news flow for the markets which could be a rallying point. The US FED meets next week for its six weekly review meetings. Looking at the red-hot economy and data emerging from the US, it is almost unlikely that any sort of rate cut could happen now or any time soon. How US markets react to this news would be known in three trading sessions. 

The strategy for the week would be to continue to book profits and take money off the table. With NIFTY making a new closing high on Friday, there could be some more juice or steam left in the rally but the risk-reward ratio is against the bulls. Book profits and look for pockets where opportunity arises. With markets tilting towards the long side, there could be sharp corrections as and when they happen. If no stock ideas emerge, bide your time. It would be better than being fully invested at such elevated levels. 

Trade cautiously.

Markets made new intraday highs on the benchmark indices on all the four trading sessions of the week. Closing highs were made on the first three sessions and then all hell was let loose on the last trading session which was Friday. What we saw was probably the first setback after the 4th of June. It broke the back and momentum went for a toss. What next is the question on everybody’s mind. BSESENSEX gained 85.31 points or 0.11% to close at 80,609.65 points. NIFTY gained 28.75 points or 0.12% to close at 24,530.90 points. The broader markets saw BSE100, BSE200 and BSE500 lose 0.55%, 0.81% and 1.06% respectively. BSEMIDCAP was down 2.63% while BSESMALLCAP lost 2.86%. Suffice to say that the color of the markets was red on the trading screens. The IT and Tech sectors saved the market somewhat as they were big gainers, while Capital goods and metals were the big losers.

The intraday high made on Friday was 81,587.76 points on BSESENSEX while it was at 24,854.80 points on NIFTY. The losses that the markets suffered on Friday from their intraday highs was almost 1,000 points on BSESENSEX and 325 points on NIFTY. This kind of fall on virtually the eve of the budget, sets up an interesting week with the budget on Tuesday and July futures expiry on Thursday. Volatility in the markets would rise sharply and there would be plenty of two-sided moves. Markets gained on three of the four trading sessions, and lost on one.

The Indian Rupee lost 12 paisa or 0.14% to close at Rs 83.66 to the US Dollar. Dow Jones too had a very choppy and volatile week. It gained very sharply in the earlier part of the week and then fell equally sharply. In a week that saw Dow gaining on three of the five sessions, we saw Dow making an intraweek high of 41,221.98 points. Dow closed at 40,287.53 points, a gain of 286.65 points or 0.72%. Here too the reversal was very sharp and hit the markets badly.

What triggered the setback in our markets and globally as well. People may blame it on the massive outage that took place in Microsoft Edge, but that basically had no relevance. There was chaos in India as well and 100s of flights were cancelled on Friday and partly on Saturday. As well. Normalcy returned thereafter. It only shows how vulnerable the world has become.  

Results season is on and the outcome is a mixed bag. After TCS results, Infosys results were declared and they were marginally better than the street expected. However, because of negative sentiments in the markets about Infosys, saw the share rise sharply. It gained Rs 81 or 4.73% to close at Rs 1,791. The high it made was at Rs 1,842, a loss of Rs 51 from the highs. During the weekend four banks and Reliance Industries have declared results. In the present circumstances these results do not enthuse the markets and they would not be able to change the sentiment and drive markets upwards. 

The week ahead sees the budget being presented on Tuesday the 23rd of July. Expectations are that there would be announcement of some freebies and that income tax relief of Rs 50,000 or thereabouts would be announced at the bottom of the pyramid. Further there would be some mention of allocation to build the new capital of Andhra Pradesh after Hyderabad becoming the capital for Telangana. An allocation of special status for Bihar would further dent the resources available. While the buoyancy of revenue collection and the economy which is in fine fettle would increase allocable money for the FM, it would be a tightrope walk to balance expectations of all stakeholders. Probably allocation to growth driven infrastructure could see some hit. All of this could see the budget being a mixed bag from the market’s perspective. 

One possible view that emerges post the budget is, that there is no negative surprise and hence it is positive, could rally the markets. Otherwise by and large it could be a neutral budget from the market perspective. In any case, the biggest concern in the markets currently is valuations and they are skewed and tend to be in the expensive and uncomfortable zone. 

Post the budget presentation we have July futures expiry on Thursday the 25th of July. The present level of NIFTY at 24,530.90 points is higher by 486.50 points or 2.02%. While the lead favors the bulls currently, the fact that Friday saw an intraday fall of close to 325 points, the lead is not much. Further, the Budget in the middle could see sharp volatility. While currently the bulls have the upper hand, things could over the next four days change completely. 

In primary market news, we have the issue from Sanstar Limited during the week. The issue opened on Friday the 19th of July and would close on Tuesday the 23rd of July. The issue consists of a fresh issue of 4.18 crore shares and an offer for sale of 1.19 crore shares in a price band of Rs 90-95. The company is into the business of processing maize for use in food, pharma and cattle feed. The PE multiple for the company is between 18.95-20.00.  The main object of the issue is to increase the present capacity by almost double. This capacity would be available by the end of the current financial year. With present capacity utilization at a high 80% level, there is little scope for growth in the current year. With dilution there would be an impact on earnings. 

While there is a grey market currently in the shares, they do change as the issue progresses and lists. Investors with a long term view could take a look at the share once it is listed for some time, and then take a call. 

Coming to the markets in the week ahead, expect them to be choppy and volatile with two events ahead. The budget and July futures expiry will keep them in the thick of action. The strategy would be to continue to take money off the table and allow the budget to sink in over the next couple of days. FPIs have been giving confusing signals with their buying and selling alternating over time over the last month or six weeks. Geo political news over the last 24 hours are also a cause of worry. In such a fluid position ahead of important events, it becomes that much more imperative to have a light position and allow events to unfold. 

In conclusion, allow events to unfold and then take action. Trade cautiously.