Markets last week were under a lot of pressure and this was primarily on account of the Dow sending negative signals. Wednesday saw a sharp fall in markets from which there was no recovery. At the end of the week with losses on all five days and a poor February futures expiry, markets will be under pressure from the start of the week as Dow had yet another poor session on Friday. BSESENSEX lost 1,538.64 points or 2.52% to close at 59,463.93 points while NIFTY lost 478.40 points or 2.67% to close at 17,465.80 points. The broader markets saw BSE100, BSE200 and BSE500 lose 2.59%, 2.60% and 2.49% respectively. BSEMIDCAP was down 2.05% while BSESMALLCAP was down 1.65%. All the sectoral indices closed with losses for the week and BANKNIFTY is now at dangerous levels. The weight of the same in NIFTY is over 40% which adds to the pressure in the coming week. 

The Indian Rupee gained 8 paisa or 0.10% to close at Rs 82.75 to the US Dollar. Dow Jones gained on two of the five sessions and lost on the remaining three. It had a bad Tuesday and was sharply down on Friday as well. The dichotomy in the US is that jobs are being generated and unemployment is down sharply. This means that rising interest rates are not going to stop early. The street was expecting 2 rate hikes of 25 basis points before they went steady. Now, they expect one rate hike of 50 basis points followed by 2 or three of 25 basis points before the current calendar year ends. It is this street expectation that has made markets nervous and seen a sell-off of some sorts. 

The Ukraine-Russia war has completed one year, something which was beyond imagination when it began. Now, global markets are in fine shape with European markets doing the best. This is in sharp contrast to their economies being worst hit by rising fuel and gas prices and issues of fresh fruit and vegetables hitting them hard. Strange are the ways that markets behave. 

Looking at results which have been declared for the quarter October-December 22, one sees definite signs of a slowdown or degrowth in demand in products as diverse as inner wear and paints. Strange as it may seem but this makes one to believe that India and its economy is seeing a slowing down in demand. Rural demand has been experiencing a slow down in demand for a few quarters already and now a similar scenario is being seen as early signs from semi-urban and urban areas as well. How things will pan out, is yet to be ascertained. 

After a hiatus of just about a month, we have an IPO in the week ahead. Divgi Torqtransfer Systems Limited is tapping the capital markets with its primary issue for Rs 180 crs and an offer for sale of 39,34,243 equity shares. The company as the name suggests is into the business of supplying transfer case systems, torque coupler and DCT solutions for passenger vehicle manufacturers in India. The company is also in the process of designing and developing prototypes of transmission systems for EVs. The company has received an order for supply of the same from a leading provider of EVs in India. 

The top five customers account for between 88%-92% of the companies’ revenues. The revenues for the year ended March22 were Rs 241.87 crs while its net profit was Rs 46.26 crs. It reported an EPS of Rs 16.76. For the six month period ended September 22, the company reported revenues of Rs 137.54 crs and a net profit of Rs 25.41crs. The EPS for the six months was Rs 9.32. For comparison sake if one were to annualise the same, the EPS has increased from Rs 16.76 to Rs 18.64, a growth of 11.12%. 

The price band of the issue is yet to be announced and would happen on Monday the 27th of February. The issue opens on Wednesday the 1st of March and closes on Friday the 3rd of March. Being a niche company and in a highly skilled activity, one can be sure that the issue would be richly valued. The positive is the reasonable size, high margins considering its in the automobile segment and its pricing power with OEMs. 

February futures expired on Thursday the 23rd of February on a weak note. The series lost 380.70 points or 2.13% to close at 17,511.25 points. It’s been a tough series with markets being under pressure almost throughout the month. Markets were higher than the open for hardly a week before retreating and continuing the being under pressure. 

FPIs have turned sellers again in India and while domestic funds are trying to match the selling, they have turned cautious. The cash with Mutual funds as a percentage of their AUM has moved up significantly, indicating the continued fund flow into domestic funds and their deployment slowing down. It would be interesting to see how FPIs behave with Dow not giving any signs of comfort whatsoever. 

The next round of selling in the markets would be in the midcap and Smallcap space. This segment is still overheated and has not seen any significant price damage or selling. Small investors are quite complacent about their market exposure in this segment and believe they are insulated from market correction. A shakeout is imminent and may see the beginning this week onwards. 

Coming to the week ahead, expect markets to be under pressure from the opening day. They will make an attempt to bounce simply because they have lost on all five days of the previous week. This however would be just a relief rally and an opportunity to sell. The budget day low made on 1st February of 58,816.64 points on BSESENSEX and 17,353.40 points on NIFTY are under threat. Markets may take support here but may not hold if retested once again. Following this on, the next level of support would be closer to 17,000-17,050 on NIFTY and 57,900-58,050 on BSESENSEX. This should hold good for the week. If however this were to break or give away as well, we could see a sharp sell-off. 

The strategy for the week would be to keep one eye on the happenings in the US. If those markets correct, there is no way we can go in the opposite direction. The pace of movement could be slower or faster but the direction would be the same. Use rallies or corrections to wait to sell again. Concentrate on any longs in the large cap only and expect corrections in midcap and Smallcap segment. 

Trade cautiously.

Markets are unable to make up their mind as to in which direction they want to go. They seem to be moving in no man’s land. They gain for a couple of days and then lose for a few days. The only thing of interest is the pattern of gaining and losing days. Last week, they lost on the first day of the week, gained on the next three and ended on the last day of the week with losses. BSESENSEX gained 319.87 points or 0.53% to close at 61,002.57 points, while NIFTY gained 87.70 points or 0.49% to close at 17,944.20 points. The broader markets saw BSE100 and BSE200 gain 0.33% and 0.01% while BSE500 lost 0.07%. BSEMIDCAP lost 0.82% while BSESMALLCAP was down 0.77%. 

The Indian Rupee lost 33 paisa or 0.29% to close at Rs 82.83 to the US Dollar. Dow Jones had yet another flattish week losing 42.58 points or 0.13% to close at 33,826.69 points. Dow gained on three of the five sessions and gains and losses were on alternate days. 

Time flies and the Russia – Ukraine war or confrontation would be witnessing its first anniversary on the 24th of February. Markets had reacted initially when the war did break out, but things have very much evened out and supply chain logistics are back to normal. Interestingly Europe is the worst affected in terms of gas and crude from Russia being affected, yet stock markets in Europe are trading at new highs currently. The FTSE (British), CAC (French) and DAX (German) indices are currently at new highs. Dow, which has witnessed unprecedented interest rate hikes, is down about 5% from its 52-week high. India saw new lifetime highs being made on the 1st of December and is currently down about 4%. Very clearly, the world is back to normal but for the two involved in the battle. 

Markets are moving in a trading zone and are seeking direction. What could lead to the same is not clear and not sure. Even hazarding a guess is difficult. Results for the October – December quarter are completed and they have been more or less on expected lines with not too many positive or negative surprises. The good part is the costs pressures have abated and supply chain issues resolved. Ocean freight which was a big hindrance with elevated rates has near normalised and comes as a relief to cross border trade. At the same time shipping companies have their hands full with demand for shipping space increasing. Markets are unclear which way they should move. 

It seems new age and e-commerce companies have a set of rules of their own. After the tweet last week from Deepinder Goyal of Zomato to Vijay Shekhar of Paytm on profitability and performance, it’s now the turn of Falguni Nayar the MD and CEO of the company that owns Nykaa. Commenting on the performance of the company after its Q3 and nine months results, she said “The performance has been especially good given the backdrop of eight fewer festive days in Q3 FY23 compared to Q3FY22” This was in response to the company posting revenues of Rs 1462 crs which were up 33%. What was conveniently not mentioned was the fact that gross margins, EBITDA and Net margins fell for the company. The company reported a net profit of Rs 8.5 crs which was down 71% from the earlier 29 crs. One wonders whether sales growth is all that a company looks for and doesn’t care about its margins. Not sure whether the festive days being lesser involves better margins or what?

Shares of Nykaa have been at the receiving end ever since the company announced a liberal bonus issue of five shares for every share held. The company had issued shares at Rs 1,125 and made a high within a month of listing of Rs 2,560. From there it has been a one-way street and after being adjusted for bonus, where the high would become Rs 426.66 and the issue price Rs 187.50, is now trading at Rs 139.45. The share has lost 25.63% against its issue price and 67.32% from its high. I believe all of us need to go back to school to learn what these modern P.E. funded promoters and management mean when they make comments. 

SEBI has announced through a circular new disclosures and details to be made public about fresh fund-raising norms for IPOs, Rights issues and OFS. The most important part is that the valuation details which were kept secret earlier and hid behind a number of shares will now become open in the document. Prospective investors will be aware of what amount the company proposes to raise through the issue. This will avoid the issues of valuation expectation not being met by either the prospective investors or the expectations of promoters failing. Great move by the regulator and Kudos to them. 

The week ahead sees February futures expire on Thursday the 23rd. The present value of NIFTY at 17,944.20 points is 52.25 points or 0.29% higher for the February series. With the kind of volatility and four trading sessions left, the series is up for grabs. It could go either way. The range for the series has been big between 17,353 – 18,134 points with the lows being made on budget day and the budget week being the one where markets were under pressure post the Adani Enterprises subscribed FPO being withdrawn. The good part is that markets gained post budget and the lows made were not breached again. In such a scenario, expect markets to remain range bound but volatile. 

Coming to the week ahead, expect markets to remain volatile but range bound. The immediate resistance, which is quite strong, continues to remain at 18,265 on NIFTY and at 61,400 on BSESENSEX. The level of BSESENSEX was breached upwards during the last week and the two indices, BSESENSEX and NIFTY have been moving at different speeds. However, the event lasted for just a day and could be taken as an aberration. On the downside, strong support exists at levels of 17,650-17,700 on NIFTY and at 59,900 – 60,050 on BSESENSEX. Sell on strong rallies and buy on sharp dips. Keep an eye on Dow as markets tend to move in similar directions.