Expiry week will induce volatility and sharp movements (Market Watch)

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The week gone by was a four-day week with Friday being a holiday. The week began on a positive note but that was all the positive news for the week. Markets lost ground on all the remaining three days. BSESENSEX ended the week with losses of 1,050.68 points or 1.73 per cent to close the week at 59,636.01 points. NIFTY lost 337.95 points or 1.87 per cent to close at 17,764.80 points. The broader indices saw BSE100, BSE200 and BSE500 lose 1.74 per cent, 1.85 per cent and 1.81 per cent, respectively. BSEMIDCAP lost 1.71 per cent, while BSESMALLCAP lost 1.49 per cent.

The Indian Rupee gained 20 paisa or 0.27 per cent to close at Rs 74.24 to the US Dollar. Dow Jones lost on four of the five trading sessions and lost 498.33 points or 1.38 per cent to close at 35,601.98 points.

In market news, Reliance Industries announced the cancellation of its de-merger of O2C business as Aramco who was expected to invest 20 per cent in this de-merged business has decided to re-evaluate the proposed investment. This is not the first time that Reliance has changed its mind about mergers and de-mergers. It had earlier decided to do similarly with its media business and then changed its mind. While the news is negative for Reliance Industries, there would be no negative impact on the price in the immediate short term as the share price of Reliance in the last week has already fallen Rs 120 or 4.63 per cent.

In primary market news, it appears the much talked about and debated airline issue from now rechristened Go First is likely to tap the capital markets from the 8th of December. The company in the last week filed its half year ended September 2021 results in which it has continued to make losses like the remaining players from the aviation sector. The positive part is the better performance parameters achieved.

The primary issue from Tarsons Products Limited was subscribed 77.49 times with QIB portion subscribed 115.77 times, HNI portion subscribed 184.58 times and Retail portion subscribed 10.55 times. There were 22.22 lakh applications and on the basis of lots, the retail issue was subscribed 9.07 times.

The primary issue from Go Fashion (India) Limited is tapping the capital markets with its fresh issue for Rs 125 crore and an offer for sale of 1,28,78,389 shares in a price band of Rs 655-690. The issue has opened on Wednesday, November 17 and closes on Monday, November 22. As of Thursday, the issue is subscribed 6.87 times with Retail portion subscribed 24.63 times. There are 14.37 lakh applications which have been received.

The company is into the business of selling women's bottom wear which includes western trousers and pants, Jeggings, Treggings, Skirts, Shorts, Leggings, Churidars, Patiala, Salwar, Palazzo, Dhoti pants, Harem pants, Denims, Athleisure, Sleepwear and Leisure. The company enjoys gross margins which are around the 55 per cent level and EBITDA margins in the range of 28-32 per cent. While in FY20 it reported net margins of 13.4 per cent, it reported losses in FY21 and the first quarter of FY22 as well. The pandemic has had a severe impact on the company. Revenues in FY20 were at Rs 396 crore which fell to Rs 282 crore in FY21 and were Rs 40 crore in the first quarter of FY22. The corresponding quarter in FY21 saw revenues of Rs 21 crore.

The issue consists of a significant portion of offer for sale and is therefore priced exorbitantly considering the mood of the primary markets.

There were five listings which took place during the week, with three of them on Monday and two of them on Thursday. The first to list was PB Fintech, the company which owns the brand Policy Bazar. Shares which were issued at Rs 980, ended day one at Rs 1,202.90, a gain of Rs 222.90 or 22.74 per cent. By the end of the week, the share had gained further to end with 35.81 per cent gains.

The second share to list was Sigachi Industries Limited which had issued shares at Rs 163 and saw the best gains in over 12-13 years. The share closed day one at Rs 603.75, a gain of Rs 440.75 or 270.40 per cent. At the end of the week, the gains had reduced to 251.01 per cent.

The third issue to list was SJS Enterprises Limited which had issued shares at Rs 542. The share closed day one at Rs 509.85, a loss of Rs 32.15 or 5.93 per cent. The losses had widened at weekend to be 13.49 per cent.

The fourth share to list was Sapphire Foods Limited which had issued shares at Rs 1,180 and closed day one at Rs 1,216.05, gaining Rs 36.05 or 3.06 per cent.

The fifth and final listing was from India's largest fund raise ever, One 97 Communications Limited, the owner of the super app Paytm. Shares were issued at Rs 2,150 and the share closed at Rs 1,564.15, a loss of Rs 585.85 or 27.25 per cent. The below expectation performance of the stock would affect not only the future of the already listed new age companies on the bourses, but also the companies looking to tap the capital markets in the near future. One saw many of the new age companies suffer significant losses on Thursday.

Markets are under pressure and the spate of primary market issues with they coming at unheard valuations is depriving the market of the liquidity that should be available at such dizzy heights and valuations. Foreigners or FPI's have been aggressive sellers and even on Thursday they have net sold Rs 4,000 crore of stock. The delivery volume on Paytm was in the region of Rs 1,833 crs and one could safely assume that at least half of that would have been bought by FPI's. Even then, this sales figure is large and therefore disturbing.

The week ahead sees November NIFTY futures expire on Thursday the 25th. With the fall last week, NIFTY futures are now negative and are down 92.45 points or 0.52 per cent for the series. While the number is insignificant with four trading sessions to go, it would put pressure on the bulls and surely the bears having an upper hand after a long time would not like to give in. It would be an interesting battle in the coming four days.

In terms of Covid-19, parts of Europe are under pressure with Austria imposing a complete lockdown and Germany contemplating tough measures. In India, the vaccination drive is continuing and we have seen a total of 116.51 crore vaccinations, with 76.59 crore being the first shot and 39.92 crore being fully vaccinated. The numbers have been increasing and the earlier complacency towards vaccination seems to be reducing.

Coming to the markets in the week ahead, expiry being four days away would ensure that markets are volatile. We have been under pressure and as mentioned earlier, FII or FPI have been net sellers. There are reports about the stiff valuations that markets are currently trading at and a combination of net selling and overheating would ensure that our markets go nowhere. Every now and then they would bounce but rallies would be fewer and far between.

The strategy would be to buy on sharp dips in large cap stocks and sell on rallies. Keep cash on the side and reduce exposure from midcap and Smallcap stocks.

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

--IANS

arun/ksk/