Will budget be the tipping point?

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Arun Kejriwal | 19 Jan, 2021
Markets continued their upward movement but not without their corrections and sharp intraday moves as well. On three of the five trading days we saw markets slipping into the red or negative territory and then recovering to close higher. This also led to sharp movements between the high and the low of the day.

Friday was another day where markets remained under severe pressure throughout the day and surrendered over 2/3rd of the weekly gains. At the close of the week, BSESENSEX gained 252.16 points or 0.52 per cent to close at 49,034.67 points while NIFTY gained 86.45 points or 0.60 per cent to close at 14,433.70 points. The broader indices saw BSE100, BSE200 and BSE500 gain much less at 0.27 per cent , 0.18 per cent and 0.08 per cent respectively. BSEMIDCAP and BSESMALLCAP closed in the negative, down 1.23 per cent and 1.20 per cent respectively. A surprise counter to be in the news was Asian Paints which lost Rs 254 or 8.93 per cent to close at Rs 2,590. The correlation of the stock is with the IPO of Indigo Paints which opens in the week ahead and more of that further down in the article.

The Indian Rupee gained 17 paise or 0.23 per cent to close at Rs 73.07 to the US dollar. Dow Jones lost 283.71 points or 0.91 per cent to close at 30,814.26 points. The US President-elect Joe Biden would be sworn in on Wednesday, January 20 and the US is gearing up to some ugly incidents which may happen on that day. Incidentally, outgoing President Donald Trump would be the first US President to have been impeached twice.

FPI buying continues unabated and is the mainstay of the current rally in India. In the current month of January, FII's have so far bought on a net basis Rs 16,901.33 crore while domestic institutions have been net sellers to the tune of Rs 12,323.26 crore. As long as FII's are significant net buyers, the much talked about correction could get delayed. However, corrections which are more one off in nature as happened on Friday and intraday volatility witnessed between Tuesday and Thursday would continue. Also, the fact that markets are under pressure is borne out by the fact that we are having a negative advance to decline ratio, right through the week.

The week saw SEBI passing an interesting order against a TV co-host who aired a highly speculative show on CNBC Awaaz called 20-20. As the name suggests the show was all about buying today and selling tomorrow. Little did the patrons of the show realise that the host was buying yesterday and selling today while they became the suckers. While he has to disgorge the profits of just about Rs 2.95 crore made in the name of his mother and wife, he also awaits further scrutiny in the matter of insider trading.

This case throws up two important questions which the regulator must probe. Positions of a couple of crores and even more were taken with the trading member by these two ladies. Did the broker do a proper KYC of them or not bother about it. Secondly, most of the TV Channels have similar shows and the people involved with the program are indulging in activities similar to that detected in the case of Hemant, and this is an open secret. It's time to do a thorough probe and if found necessary, ban such shows permanently as they are harmful to the interest of investors in the long run. They only promote speculation.

The week ahead sees two IPO's hitting the market. The first is from the finance arm of the Indian Railway, IRFC or Indian Railway Finance Corporation Limited. The issue consists of a fresh issue of 118.80 crore shares and an offer for sale of 59.40 crore shares to total 178.20 crore. The issue which opens on Monday the 18th of January and closes on Wednesday the 20th of January has a price band of Rs 25-26. The company has a very unique model wherein rolling stock like wagons, coaches and locomotives are financed by IRFC on a 15-year lease model. The NBFC finances these assets on the basis of the weighted average cost of borrowing and a fee/commission of 40 basis points. The company currently has an AUM (Assets under management) of Rs 2.66 lakh crore and going by the expansion plans of the Railways, this would more than double in under three years. The issue looks very attractive and could be looked at a semi-debt instrument with capital appreciation as well. The net worth of the company has traditionally been leveraged between 8-10 times.

The second issue is from Indigo Paints Limited which is tapping the markets with a fresh issue of Rs 300 crore and an offer for sale of 58.40 lakh shares in a price band of Rs 1,488-1,500. The issue would raise Rs 1,169.12 crore. The issue would open on Wednesday the 20th of January and close on Friday the 22nd of January. The top line of the company in FY 2020 was Rs 624 crore and in the first six months of FY21 was Rs 259 crore. The company's brand ambassador is the well-known cricketer M.S. Dhoni. The issue will do well looking at the fact that the company is a niche player and is growing fast and also has some unique products. While the size of the company is small compared to the market leader Asian Paints, it is being given weightage only because of its niche positioning. Post listing it would be interesting to see whether the stock can sustain the grey market premiums being ascribed to the share currently.

On the Covid-19 front, the world saw 9,49,68,081 patients, 20,31,282 deaths and 6,77,86,759 people recovering. In India we saw 1,05,58,710 patients, 1,52,311 deaths and 1,01,96,885 patients recovering. During the week the world saw 48,66,572 new patients, 96,071 deaths and 32,94,162 patients recovering. In India, we saw 1,07,364 new patients, 1,263 deaths and 1,20,935 patients recovering. The largest vaccination drive for Covid-19 began in India on the 16th of January and it would be interesting to observe the results say post a fortnight on the people administered with the vaccine.

Markets are experiencing bouts of buying and selling and the biggest challenge is to change the mindset of people as they wait for a correction to buy. When the correction does happen like it did on Friday, the buying enthusiasm vanishes or reduces significantly. This dilemma is keeping a large number of investors waiting on the side-lines. Will they jump in and buy or sell? This is a very difficult question to answer. History, however, says that at around the top there are two clear indications available. Firstly, volumes are unprecedented and two, stocks move like crazy in particularly heavyweight stocks. Neither of this has happened so far, hence you may surmise that the top is yet to happen even though advance cautionary signals are available. In the final thrust we could see a Reliance and ITC gaining 3-5 per cent in a day and about 8-10 per cent in less than a week. This was just as an illustration and there could be many more stocks which add the final momentum push.

The strategy for the week ahead would be to continue to book partial profits and secondly as a continuous exercise continue to improve the quality of the portfolio you hold. Knock of the weakest stocks in the portfolio and if you so desire add to the strongest you hold.