Markets last week had a truncated trading week with just three trading sessions. The opening day and closing days of the week were trading holidays with the first being a holiday on account of the Ayodhya temple consecration and Friday on account of India’s republic day. Markets were volatile in the three sessions and they lost on two sessions and managed to gain on one session. What is more important is the fact that the midcap and Smallcap space which have been the outperformers in 2023 are now in the firing line. In the last week, on all three sessions the midcap space saw a movement of about 3% on an intraday basis while Smallcap saw the same on two of the three sessions. This extreme volatility will make small investors who hold these shares quite worried and catch them on the wrong foot. While markets seem to be in some sort of a corrective mood, the street believes in a feeling of every dip as a buying opportunity. 

BSESENSEX lost 722.98 points or 1.01% to close at 70,700.67 points while NIFTY lost 219.20 points or 1.02% to close at 71,352.60 points. The broader indices saw BSE100, BSE200 and BSE500 lose 1.02%, 1.02% and 1.04% respectively. BSEMIDCAP lost 1.65% while BSESMALLCAP lost 0.58%. 

The Indian Rupee lost 6 paisa or 0.07% to close at Rs 83.12 to the US Dollar. Dow Jones gained on three of the five sessions and lost on two. It was up 245.63 points or 0.65% to close at 38,109.43 points.

In primary market news, the issue from Medi Assist Healthcare Services listed on Tuesday the 23rd of January. The company had issued shares at Rs 418 and shares closed on day one at Rs 464.25, a gain of Rs 46.25 or 11.06%. By Thursday, the share gained marginally and closed at Rs 464.80, a gain of Rs 46.80 or 11.20%. 

The issue from Epack Durable Limited closed for subscription on Wednesday the 24th of January. The issue was in a price band of Rs 218-230. The issue which consisted of a fresh issue of Rs 400 crs and an offer for sale of 1.04 cr shares was subscribed 16.79 times overall with QIB portion subscribed 25.59 times, HNI portion subscribed 29.06 times and Retail portion subscribed 6.50 times. There were 8.58 lac applications. 

The issue from Nova Agritech Limited for a fresh issue of Rs 112 crs and an offer for sale of Rs 31.81 crs in a price band of Rs 39-41 received overwhelming support and was oversubscribed 113.20 times. The QIB portion was subscribed 81.13 times, HNI portion was subscribed 233.01 times and Retail portion was subscribed 80.19 times. There were 25.42 lac forms. 

January futures expired with bears dominating the series after a flurry of activity and bulls calling the shots in the first fortnight of January. Thereafter bears had things their way and they pulled the series back and saw it end with losses. January futures ended with losses of 426.10 points or 1.96% to close at 21,352.60 points. 

The Union Budget would be presented on Thursday the 1st of February 2024. While this is an election year and the budget would be by and large a vote on account, there could always be some announcements which are directed towards the common man and the middle-class masses so as to make their life a little easier. While expectations normally run high, I believe the endeavour would be to ensure that there is a gain in disposable income of about Rs 50,000 in the hands of this category. This could be by way of standard deduction or even tinkering with the new and old tax regime which was done last year. 

The week would see a number of companies announce their roadshows and primary issue opening program on Friday and in the following week. The sort of lull witnessed in main board IPOs should again see the pace picking up from the 2nd of February. In January we saw just two issues listed so far and another two that would list in the following week. 

Markets have become choppy and volatile. The movement is large and moves from positive to negative and vice versa on virtually every single day. It makes money making that much more difficult. Many large cap companies have declared results and they are a mixed bag. Going forward we would see the focus shift to results from midcap and Smallcap space. Herein lies the danger as with the sharp runup over the last quarter in particular, valuations have become a concern. If this space does not declare decent and excellent results with substantial growth in topline and bottom line, many of these companies would become expensive. Herein lies the danger and these results would come in the first fortnight of February bunched towards the middle of the period. 

The strategy for the week ahead would be to sell on rallies and allow the markets to correct themselves. Be choosy in buying. Expect sharp two-sided moves in the coming week with a downward bias. Thursday on account of budget could be a super volatile day. 

Trade cautiously.

The week gone by saw markets being super volatile and also a sharp churning being witnessed. They gained initially and then lost sharply. With the backbone of markets being broken on account of a below expectation result from HDFC Bank, markets found recovering tough and virtually impossible.  Even an extra trading day on Saturday did not help. At the end of six days of trading in which markets lost on four days and gained on two, BSESENSEX was down 1,144.80 points or 1.58% to close at 71,423.65 points while NIFTY lost 322.75 points or 1.47% to close at 21,571.80 points. The broader markets saw BSE100, BSE200 and BSE500 lose 1.22%, 0.85% and 0.71%. BSEMIDCAP gained 1.33% while BSESMALLCAP was up 0.27%. 

The Indian Rupee lost 14 paisa or 0.17% to close at Rs 83.06 to the US Dollar. Dow Jones lost on two sessions and gained on two sessions. The gains came on the last two trading sessions consecutively and were steep. Dow gained 270.82 points or 0.72% to close at 37,863.80 points. 

In primary market news we saw the shares of Jyoti CNC Limited list on the bourses on Tuesday the 16th of January. The company which had issued shares at Rs 331 saw its shares close on day one at Rs 433.15, a gain of Rs 102.15 or 30.86%. In the remaining part of the week, the share lost marginally and closed at Rs 431.05, a gain of Rs 100.05 or 30.23%. 

The public issue from Medi-Assist Healthcare Services Limited which was open for subscription from Monday the 15th of January to Wednesday the 17th of January, received excellent subscription and response. The issue was subscribed 16.24 times overall with QIB portion subscribed 40.14 times, HNI portion subscribed 14.85 times and Retail portion subscribed 3.19 times. There were over 7.44 lac applications in all. The share would list for trading on Tuesday the 23rd of January on the bourses.

The big trigger for the sharp loss on Wednesday was the declaration of HDFC Bank results for the third quarter. While the results were largely in line, what the street did not like was the slowdown witnessed in deposit growth. The share was mercilessly hammered and lost Rs 142.05 or 8.46% to close at Rs 1,536.90. The contribution to the BSESENSEX fall was 944 points out of a total fall of 1,628 points or almost 58%. With HDFC Bank leading the fall, it became a reason for many stocks which have been continuously rising to take a breather and actually correct on Wednesday. By the end of the week, the Bank extended its losses to lose Rs 161 or 9.82%. The share closed at Rs 1,479. 

IREDA (Indian Renewable Energy Development Agency Limited) shares have been on a roll in the markets ever since they listed. Shares of IREDA were issued at Rs 32 and closed Saturday at Rs 148.90 which was upper circuit. The company is a specialised lending agency and has a business akin to a bank, except that it does not accept deposits from customers. Post excellent results for Q3 which were just declared, the share has a 9-month EPS of Rs 3.91 and the PE multiple annualising these earnings of Rs 5.22 would be at a level of 28.53. The price to book would be 6.31 times. 

In the case of IRFC, the PE multiple is 37.99 and price to book 5.07 times. The business of IRFC is to arrange loans for the Indian Railways and it gets a handling fee of 35 basis points for the amount raised. Its income in terms of commission is capped at this level of 35 basis points. In the case of IREDA, the company is a specialised lender for the renewable energy sector and is able to raise money at lower rates. However, unlike a bank it cannot raise deposits. The euphoria about these two stocks is around the government of India doubling its allocation towards railway spend in the budget to be announced on 1st February. Not sure how this doubling would affect the fortunes of these two companies which have become more expensive than almost all, but a handful of banks. 

There is an issue from EPack Durable Limited which opened on Friday the 19th of January and would now remain open till Wednesday the 24th of January. The issue has been extended by a day because of the stock exchange holiday declared on Monday the 22nd of January. Even though markets were open on Saturday the 20th of January, bidding for the issue was not available, hence the extension. The price band for the issue is 218-230. The company is into the contract manufacturing of air-conditioners, small domestic appliances and supplies moulding components. The company has factories at three locations and has backward integrated substantially so that the share of the pie can be increased. Its strength lies in the fact that it has invested around Rs 300 crs under the PLI scheme which would give the company an advantage when it makes more components for the small appliance industry. 

The company reported revenues of Rs 1,538.83 crs for the year ended March 23, and an EBITDA of Rs 102.52 crs and a profit after tax of Rs 31.97 crs. The EPS on a fully diluted basis was Rs 4.64 and the PE price band at 46.28-48.83. On the face of it the PE multiple looks expensive but when one considers the investment of Rs 150 crs each over the last two years and being eligible for benefits under the PLI scheme, the issue looks attractive. Further, the revenue mix currently is skewed in favour of making air conditioners which is roughly 85% of the revenue mix. Air conditioner making is a cyclical industry with production for roughly 6-7 months. In the remaining period, component making machinery is idle and if it can be ramped up, it could provide substantial benefits for a manufacturer. It is this that Epack would look to maximise on.   

The highs on the benchmark indices made on Tuesday were at 73,427 points on BSESENSEX and at 22,124 points on NIFTY. We have come quite far from these levels and these would act as strong resistances in the immediate near term. Markets seem to have come into a different mood altogether and investors are throwing caution to the wind. This present situation can best be described by one word as ‘euphoria’. To catch the market mood, we currently have one SME issue open with its name “Euphoria Infotech (India) Limited”. No aspersions on the company but just a comment on the market mood and the name.

The week ahead is an extremely short one and has a mere three trading sessions. The opening day of the week Monday and the closing day Friday, are both trading holidays. Further the last day of the shortened week would see January futures expire. The current value of NIFTY at 21,571.80 points, implies a negative 206.90 points for the series and three sessions to go. While this expiry month has been choppy and the present deficit is a little more than one day’s move, things would remain quiet and the bulls will have a tough time trying to win the series from hereon. 

The strategy would be to play on the short side and use any rallies to sell. Buying should only be done in case of sharp falls or otherwise be avoided. With expiry on the last day and a long weekend to follow, markets would be under severe pressure to sustain. 

Trade cautiously.