Markets looking jaded, may lead to a breakdown sooner or later

New Delhi: Markets continued to drift downwards and lost ground once again on a weekly basis. They lost on two of the four trading sessions of the truncated week which had Independence Day as the holiday.

At the end of it all, BSE SENSEX lost 373.99 points or 0.57 per cent to close at 64,948.66 points while NIFTY lost 118.15 points or 0.61 per cent to close at 19,310.15 points. The broader markets saw BSE100, BSE200 and BSE500 lose 0.68 per cent, 0.65 per cent and 0.61 per cent respectively. The action packed BSEMIDCAP and BSESMALLCAP too lost ground this week and were down 0.54 per cent and 0.02 per cent respectively.

The Indian Rupee was under pressure and lost 26 paisa or 0.31 per cent to close at Rs 83.10 to the US Dollar. Dow Jones too had a bad week and lost on three of the five trading sessions. It was down 780.74 points or 2.21 per cent to close at 34,500.66 points. What could be interesting to note is the fact that the two days of gains on the Dow were the opening and closing sessions of the week and both days saw gains of an almost identical 26 points. Losses were much bigger at 360 points, 180 points and 290 points. There are concerns in the US about interest rates and the looming downgrade of banks.

Coming to Indian markets, the benchmark indices have lost ground for a fourth consecutive week. In what could be a precursor for future trends, the midcap and Smallcap which were at the forefront of all action, lost ground this week after being up for seven consecutive weeks. Is fatigue factor setting in? Only the weeks ahead will tell, but certainly it’s a cautionary signal, something not to be ignored.

Primary markets saw two listings in the week gone by. The first share to list was SBFC Finance Limited which has issued shares at Rs 57. The share listed on Wednesday (August 16) at Rs 81.99 on BSE and at Rs 82 on NSE. The closing price on listing day was Rs 92.21 on BSE, a gain of Rs 35.21 or 61.77 per cent. In the remaining two days the share lost some ground on profit taking and closed at Rs 88.24, still gaining Rs 31.24 or 54.80 per cent.

The second share to list was Concorde Biotech Limited which had issued shares at Rs 741. The discovered price was Rs 900.05, a gain of Rs 159.05 or 21.46 per cent. As the day progressed, the share gained ground and closed at Rs 941.85, a gain of Rs 200.85 or 27.10 per cent.

The issue from TVS Supply Chain Logistics Limited which had tapped the markets and closed on Monday (August 14) received a tepid response, but was oversubscribed 2.84 times. The QIB portion was subscribed 1.37 times, HNI portion 2.44 times and Retail portion was subscribed 7.88 times. There were 3.65 lakh applications in all.

The week ahead sees the issue from Aeroflex Industries Limited tap the markets with its offer for sale of 1.75 crore shares in a price band of Rs 102 to Rs 108. The selling shareholder is SAT Industries Limited which is a listed entity on the bourses.

The company is into the business of manufacturing and supplying environmentally friendly metallic flexible flow solution products like braided and unbraided hoses, solar hoses, gas hoses, interlock hoses, hose assemblies etc. About 80 per cent of its turnover is exported to customers in the US and Europe among others. The company claims it has no peer group in India.

It reported revenues of Rs 269.46 crore for the year ended March 23 against the previous year figure of Rs 240.8 crore. The profit after tax was at Rs 30.15 crore against previous year of Rs 27.5 crore. Capacity utilisation has been high and was at over 83 per cent. This limits the growth that the company can achieve going forward without doing capex. The EPS for the year ended March 23 was Rs 2.64. At this EPS, the PE band is 38.63-40.91, certainly not cheap even considering that the company has quoted foreign companies as peer comparison.

The company had as recently as May and June 23 done a secondary transaction where approximately 87 lakh shares were transacted at Rs 87.56. The asking price at the top end of the price band is a steep premium of over 23 per cent. One wonders what has changed that the asking price has moved so significantly.

The business is good and as mentioned earlier needs investments in capital expenditure to add capacity. Currently the mood of the market is that over and above the issue price, irrespective of valuations there is a healthy grey market active in all issues. This issue is no exception. Apply for listing gains and sell on successful allotment.

Some interesting data points on the retail participation in markets. New demat accounts opened in July23 were 29 lakh, taking the total to 12.34 crore demat accounts. Of these a staggering 9.07 crore demat accounts or 86 per cent are with CDSL and 3.27 crore or 14 per cent are with NSDL.

FPI inflows into India in the first four months of the current fiscal are at 18.16 billion US dollars. Similarly, inflows into the capital markets through SIPs and mutual funds continue to be robust.

Shares of demerged Jio Financial Services Limited would list on Monday (August 21) and would add some flavour to the market colour. Readers would recall that the discovered price for the same on (July 20) was at Rs 261.65. The share would trade in the T-to-T segment for the next ten trading sessions.

Coming to the markets in the week ahead, it has become clear that 20K on NIFTY is Mount Everest and will need a superhuman effort to be taken out. Immediate support for markets is at 19,200 on NIFTY and at 64,650 on BSESENSEX. If these levels were to break and trade below them, we could see a sharp fall in the markets. This breakdown could ultimately bring us to levels around 18,600 and 63,000 on BSESENSEX. For this sharp fall, the breakdown must happen first and also sustain.

The trading strategy for the week would be to remain nimble footed. It is early signs that midcap and Smallcap stocks have run out of steam and are ripe for correction. Use sharp dips to buy select stocks and rallies to sell.

In conclusion, markets would remain range bound with a downward bias, with a strong possibility of a downward breakdown looming large.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)