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. 

It was a tough week and it got elongated by an extra day as budget day on the 1st of February was a Saturday. We saw markets making a bottom on Monday and then rallying for the next four days in a row. Saturday, markets were all over the place, up and then down and finally ended flat with BSESENSEX marginally positive and NIFTY marginally negative. BSESENSEX gained on five of the six trading sessions and lost on one while NIFTYY gained on four and lost on two. BSESENSEX gained 1,315.50 points or 1.73% to close at 77,505.96 points while NIFTY gained 389.95 points or 1.69% to close at 23,482.15 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.76%, 1.47% and 1.28% respectively. BSEMIDCAP gained 0.39% while BSESMALLCAP lost 0.02%. While the loss on small cap is insignificant, it just shows the damage or carnage that took place there. The lows made on Monday were at 75,267.59 points on BSESENSEX and at 22,786.90 points on NIFTY. 

The Indian Rupee lost 41 paisa or 0.48% to close at Rs 86.61 to the US Dollar. Dow Jones gained on three of the five trading sessions and lost on two. Friday saw a sharp correction. Dow gained 120.41 points or 0.27% to close at 44,544.66 points. President Donald Trump has announced duties of 25% on Canada and Mexico and an additional 10% on all goods from China. While Canada and Mexico have retaliated with similar duties of 25% on the USA, China is yet to respond. India in its budget has made changes to the duties on import of Tesla and Harley Davidson. This would put PM Modi in a stronger position when he visits the USA in February. It would start the meeting with a pleasant gesture from India as the stage would be set to get favors with Trump’s favorite Harley Davidson getting a favorable treatment. On expected lines, the US FED kept interest rates unchanged and it appears that an immediate rate cut looks unlikely in the near term.

The Indian budget was announced on Saturday the 1st of February. The FM Nirmala Sitharaman has now set a new record of being the first FM to declare eight budgets in a row and beating the likes of Pranab Mukherjee and P C Chidambaram. Many announcements were made in the budget which try to revive the economy which seems to be stalling. The biggest change is in the personal income tax rules which would now exempt income of up to Rs 12 lakhs in the hands of the tax payer. The relief on this would entail the center letting go of one lakh crores to tax payers. This is much higher than what people expected. A saving of between Rs 60,000-80,000 per individual would bring about consumption led saving which would have a cascading effect across sectors such as FMCG, real estate, autos, white goods and also consumption sectors like jewellery, travel and tourism and so on. Further focus has been laid on providing a boost to travel and tourism with the ‘UDAAN’ scheme extended for another 10 years. 

Bihar has been given a boost with new airports and a big boost to the health conscious food, ‘MAKHANA’ being highlighted. This crop grown in Bihar is also known as foxnut and has become a upmarket healthy snack in recent times. It comes in various flavors and would be found in all upmarket stores in metros. The budget has announced the setting up of a board to help and assist farmers in the production of this crop and the value add of the same as well. The product retails at around Rs 1,800-2,000 per kg in metros when bought in ready to use packs of 45-100 grams. 

There are announcements regarding insurance for gig workers which would go a long way in improving their lives. FDI in insurance sector has been raised from 74% to 100%. Skilling India would be another thrust area for the government. Customs duties on items used for EV and lithium iron batteries have been reduced to encourage the use of cell production in the country. There has been change in customs duties on many products where the basic duties have been reduced and additional surcharge has been levied. This is neutral to the duty on the product but benefits the center as the revenue from cess, is not shared with states. Major changes have been made in the limits of MSME as well which would give benefits to a very large segment of Indian entrepreneurs across segments. This is the driving force of the country and something that has the potential to turn things around. 

The budget is banking on the boost in the hands of the largest segment of tax payers in the country getting this money and the same giving rise to a cascading increase in consumption, leading to a revival in demand across sectors. Time will tell how much it leads to. Other things were on expected lines and one must remember that everything these days does not go through the budget. 

In primary market news, the issue from Denta Water and Infra Solutions listed on the bourses on Wednesday the 29th of January. The company had issued shares at Rs 294. The share closed day one at Rs 346.45, a gain of Rs 52.45 or 17.84%. Over the remainder of the week, the share lost some ground and closed at Rs 336.60, a gain of Rs 42.60 or 14.49%. 

The issue from Dr Agarwal’s Healthcare Limited in a price band of Rs 382-402 was subscribed on the basis of support from QIB’s. The issue was overall subscribed 1.55 times with QIB portion subscribed 4.64 times. HNI portion was under subscribed 0.4 times, Retail portion undersubscribed 0.41 times. Employee portion was undersubscribed 0.27 times. The share would list on Tuesday the 4th of February, one day earlier because of markets working on Saturday on account of the Union Budget.

January futures expired on Thursday the 30th of January and markets were choppy to say the least. The series ended with bears taking it most comfortably. The series was down 500.70 points or 2.11% to close at 23,249.50 points.

The week ahead also has RBI meeting for the last review meeting for the financial year between the 5th to 7th of February. It is expected that there would be a repo rate cut of 25 basis points in the same to 6.25%. This would inject liquidity in the system and help economy revival.  

Coming to the markets in the week ahead, almost all the events are over except RBI meeting which is three to five days away. The outcome is more or less known that there would be a 25 basis points cut in Repo rate. Concerns for the markets continue to be its rich valuation and the continuous selling by FPIs. Even though Saturday was a holiday there was small selling by them which signifies their intent. Going forward one needs to see what happens when US markets start to correct, now that duties have been announced by both USA and its neighbors Canada and Mexico on each other. Things could turn messy as increase in rates would lead to inflation going forward. 

Key support for the markets are the lows made on Monday at 75,267 points on BSESENSEX and at 22,786.90 points on NIFTY. On the resistance side we have the same at levels of 23,500-23,600 on NIFTY and at 77,800-77,900 points on BSESENSEX. Higher up we have resistance at 23,800 points and at 78,400-78,500 points. The first of the levels were hit on Saturday before markets corrected on Saturday. While the mood of the common man is bullish with the tax breaks, the same is not the case in stock markets. FPI selling, valuations concern, results from corporate India for the October to December 24 quarter not being up to the mark, US bond yields are all matters of concern. Now we could have a new concern adding to the list mentioned. That would be US markets correcting after the tariff war. This could bring about a reaction to our markets on global weakness.  All in all, turbulent times ahead with plenty of volatility. 

The strategy in such times would be to look at large cap stocks alone and refrain from small cap and midcap stocks. These sectors are still richly valued and could experience considerable pain. Further the supply of fresh paper from PE investors, promoters and IPOs seems to be never ending. 

In conclusion, be conservative, allow things to cool off and look for safety rather than adventurism.