The markets continued to make new highs and NIFTY crossed the magical level of 10k.This week the market gave signs that the momentum is stalling and a larger correction is in the offing sooner than later. The BSESENSEX gained 280.99 points or 0.88% to close at 32,309.88 points while NIFTY gained 99.25 points or 1% to close at 10,014.50 points. The broader market too registered gains of between 0.90% and 1.00%.

NIFTY futures for July expired with decent gains of 516.45 points or 5.43%. Bulls were seen struggling on expiry day in the last hour and were unable to press home the advantage. This gave an indication of things to come and markets were slightly weaker on Friday. The midcap and smallcap segments have been seeing profit taking for the last couple of days and it is likely to continue in the coming week as well.

RBI meets for its bi-monthly policy review meet this Tuesday and Wednesday the 1st and 2nd of August where it is widely believed that there would be a rate cut. Inflation has never been so soft and benign and this is the best chance for a rate cut. The optimists are hoping not only for a rate cut but an over optimistic cut of 50 basis points. Whether it would happen or not one is not sure but going forward rate cuts would not be easy with the Fed deciding to shrink its balance sheet and maintain a tight interest rate regime. In such a scenario interest rates may not soften in India going forward post this cut.

There are two IPO’s in the coming week. The first is from Cochin Shipyard which is raising roughly Rs 1,470 crs through a simultaneous offer for sale by the government of India and a fresh issue of 339.84 lakh shares in a price band of Rs 424-432. There is a discount of Rs 21 for retail and employees. The issue is being offered at an attractive multiple of 15-16 times its FY March 2017 earnings. The company is building India’s first indigenous Aircraft carrier. Newspaper reports and the CAG peg the cost of the same at roughly 3 billion dollars. The company has billed so far Rs 7,000 crs for the ship and roughly Rs 12,000-13,000 crs would be billed over the next four or five years. Even though this is majorly to be bought out there is a handling fee which would be earned by the dockyard.

Besides the shipyard, the company is in two more verticals which are ship repair and training and laboratory services. Ship repair is a very high margin business and the company is expanding its activities by adding a new repair facility and also building a new dry dock. The new facility will sufficiently ramp up the capability and capacity of handling substantially larger ships and vessels and make Cochin shipyard a preferred vendor for new ship and repair facility.

Going forward I am sure that the government with its make in India initiative would order further aircraft carriers from Cochin shipyard rather than buying older ones and then refurbishing them. The issue is a must subscribe.

The second issue is from Security and Intelligence Services (India) Limited. The company is tapping the capital markets with its simultaneous offer for sale and fresh issue to raise Rs 775-779 crs in a price band of Rs 805-815. The PE of the issue is a staggering 61.78 times to 62.55 times based on consolidated earnings for the year ended March 2017. The company earns over 86% of its total revenues from security services and is primarily based in India and Australia. Its operation in Australia is bigger than India which 60% of the revenues from security services coming from Australia and 40% coming from India. Its net margin is just under 2%. The valuation at which the shares are being offered leave little or no scope for appreciation for the investor. Further the retail portion is a mere 10% of the issue size and makes allotment that much more difficult.

With both issues back to back, it makes sense to just apply for Cochin Shipyard and ignore the second.

With RBI policy due on Wednesday and markets showing early signs of cracking, keep on the sidelines and book profits.

Mondays seem to be a special day in July for the markets. In the first two weeks markets gained a percent each while in the third it was flat and drama happened on Tuesday when ITC was at the hammering end. The stock lost a massive Rs 37.20 intraday and made a low of Rs 276.90 before recovering. It closed the week at Rs 288.50 down Rs 48.70 or 14.40%. What is really surprising and worth taking note of is that over 9 cr shares changed hands physically or were actually delivered on Tuesday. This makes the value of transaction at Rs 2,500 crs and no names appeared on either the buy side or the sell side. It sure is a big number and very clearly there was huge interest in the stock.

The Reliance AGM was held on Friday and in characteristic fashion the company declared a surprise one for one bonus issue to coincide with its 40th anniversary. It also launched its 4G smart phone which would be available against a security deposit for three years and come absolutely free. The company which also declared impressive results for the June quarter saw its share price gain Rs 55 or3.59% and close at Rs 1,586. This incidentally is a nine year high and helped the market gain from the ITC factor.

The numbers from Wipro were better than what the street expected and the buyback at a substantially higher than market price saw the share register double digit gains. With the broader markets looking very expensive, and IT stocks having done nothing in the last couple of quarters there is a sense of security creeping in the IT sector. Investors are taking the view that with markets set to correct, there is a strong possibility that IT stocks may hold themselves, effectively outperforming the broader market.

Expiry of July series happens during the week ahead and the current level of NIFTY futures is higher by 411.15 points or 4.33% compared to the June expiry. The current level of NIFTY is at 9,915.25 points. The current position is in favour of bulls and they need to continue to press home the advantage otherwise they could be under pressure.

The new President of India has been elected and he would be sworn in on Tuesday the 25th of July. Shri Ram Nath Kovind would be the 14th President of India and the first from the NDA. Shri Abdul Kalam was elected during the NDA term but was not a member of the NDA or BJP.

Markets in the coming week would be volatile with expiry to happen. Currently bulls have the upper hand but it doesn’t take too long for things to change. We need big surprises on the positive side from ongoing quarterly results to keep the momentum going. Stay light and use sharp movements to trade the market.

Monday seems to be a magical day for the markets and a new term Magical Monday Market would seem apt what happened during the last week.
Markets gained a percent on Monday and once again set the momentum for the week in which BSESENSEX hit the 32k mark and gained 660.12 points or 2.10% to close at 32,020.75 points. NIFTY gained 220.55 points or 2.28% to close at 9,886.35 points. This was the second consecutive week in July when we saw this happening on Monday and the week having a good show. Nifty is up 4.02% since the beginning of the series.

Friday was a different kind of day and it appeared that the recently listed shares were under severe pressure. Whether it was AU Small Finance Bank or a CDSL or HUDCO. The shares saw higher volumes, significantly higher delivery volumes and lower prices. This is not to suggest that markets have peaked out but just that it is an indication.

Valuations are extremely high and there is no doubt about the same. The biggest driver continues to be liquidity and one needs to be wary of the same at these higher valuations. Be cautious is the buzz word.

NSE is in the news for the right and wrong reasons. On Monday it was disaster day when there systems came on only after the fourth attempt at 12.30pm and took about an hour to stabilise. Today the 17th of July would see their MD and CEO Vikram Limaye finally joining the board. Thirdly from the coming week NSE would introduce trading in 15 foreign stocks and three currencies.

Markets are crucially poised and dangerously too. It is better to be late than never. Take some profits of the table and allow markets to cool. Don’t be greedy and short the markets because bulls feed on bears and their shorts.