Friday, markets have shown their vulnerability, more likely to follow

Markets continued their rise and did so in style, gaining sharply on two of the five trading days and losing on two days with one being sideways. All good things must come to an end, even if it is temporary. The same happened on Friday and was a wake-up alarm for investors as well.

Markets rose sharply on Friday and it appeared that we would hit the 60,000-mark on BSESENSEX quite soon but it wasn't so. Markets corrected quite sharply midway and failed to recover. Volumes were high and it appears that we are in for a short-term correction at the bare minimum. This is not to suggest in any manner that the current rally is over.

BSESENSEX gained 710.82 points or 1.22 per cent to close at 59,015.89 points. NIFTY gained 215.90 points or 1.24 per cent to close at 17,585.15 points. The broader indices saw BSE100, BSE200 and BSE500 gain 1.25 per cent, 1.27 per cent and 1.25 per respectively. BSEMIDCAP was up 1.38 per cent while BSESMALLCAP was up 1.31 per cent. The closing highs on the benchmark indices were made on Thursday at 59,141.16 points and 17,629.5 points respectively. The intraday highs were made on Friday at 59,737.32 points and 17,792.95 points. The difference between the high of the day and the close was very significant at 722 points on BSESENSEX and 207 points on NIFTY. If one looks at it at a broader level, it is equal to the weekly gains made on the benchmark indices, a point to be kept in mind for the coming week.

The Indian Rupee gained 2 paisa or 0.03 per cent to close at Rs 73.48 to the US Dollar. Dow Jones has failed to make any fresh headway in the previous week and lost 22.84 points or 0.07 per cent to close at 34,584.88 points.

The week gone by had plenty of action in the market, primary markets and economic news. Zee Entertainment had a stormy AGM and two of its directors stepped down from the board before the AGM. The largest shareholder of the company has requestioned for an EGM and wants the promoter director to step down from the company. The share rallied from Rs 182.95 to Rs 300 before closing at Rs 255.30, a gain of Rs 72.35 or 39.55 per cent. Clearly this stock would be in the news for some time to come.

Zomato Limited, cofounder Gaurav Gupta, who was the face of the company when it went public has resigned from the company. They have also closed the groceries business as well. To create a controversy and keep the company in the news rightly or wrongly, they announced the resignation on a blog rather than the stock exchange website. On being sent a clarification note from the exchange they painted a picture where they are a highly compliant company and need not inform the exchange as Gaurav was not a KMP. A cofounder not being a KMP is indeed surprising. As luck would have it, the food app delivery platform was in news as GST would be charged effective 1st of January 2022.

All Cargo Logistics which sought to delist its shares from the stock exchanges found public shareholders vote against the resolution and defeat the same. There were 44.66 lakh votes in favour of delisting and an overwhelming 339.03 lakh votes against delisting. This clearly shows that shareholder activism is picking up and gone are the days when management could get just about anything proposed and passed.

In primary markets news shares of Vijaya Diagnostic Centre Limited listed and had a quiet beginning debuting at Rs 542.30 against an issue price of Rs 531. They closed day one at Rs 619.30, a gain of Rs 88.30 or 16.63 per cent. They gained further during the week to close at Rs 627.35, a gain of 18.15 per cent.

The other share to list was from Ami Organics Limited which debuted at Rs 902 against an issue price of Rs 610. The share closed listing day at 934.55, a gain of Rs 324.55 or 53.20 per cent. The share caught fancy with investors and touched a high of Rs 1,345.70 before closing at Rs 1,215.05, a gain of Rs 605.05 or 99.19 per cent.

The offer for sale of 172.44 lakh shares in a price band of Rs 734-744 from Sansera Engineering Limited was subscribed 11.47 times. The QIB portion was subscribed 26.47 times, HNI portion was subscribed 11.37 times and Retail portion was subscribed 3.15 times. The issue received 7.74 lakh applications.

There was a lot of economic news as well with financial bids received for divestment of Air India.

Further the government announced a PLI scheme for the automobile industry which would also include drones. They also announced the setting up of 'Bad Bank' and have announced some details for the same. This would be keenly watched as it would give an opportunity to help the ailing PSU banks and tackle their NPA's. The BSEBANKEX index was the top sectoral gainer and was up 3.46 per cent for the week.

The primary issue from Paras Defence and Space Technologies Limited is tapping the capital markets from Tuesday the 21st of September till Thursday the 23rd of September. The issue consists of a fresh issue for Rs 140.6 crs and an offer for sale of 17,24,490 equity shares in a price band of Rs 165-175. The company reported revenues of Rs 144.60 crore for the year ended March 2021 and a net profit of Rs 15.78 crore. The EPS was Rs 5.55 for the year. The PE multiple for the offer is 29.72-31.53 times its March 21 earnings.

The company has an order book of Rs 304 crore which would be executed in the next 15-18 months if not earlier. The company is into the business of designing, developing and manufacturing a wide range of defence and space engineering products and solutions. They are a leading 'IDDM' indigenously designed, developed and manufactured company. Through their subsidiaries they have established worldwide relationships for drone applications used in surveillance and various other applications. The company is into space optics, EMP and many other critical applications. The size of the company is currently small but has the potential to multiply its top line going forward.

On the Covid-19 front, the world saw 22,89,52,022 patients, 47,00,279 deaths and 20,55,51,116 patients who had recovered. In India we saw 3,34,48,163 patients, 4,44,869 deaths and 3,26,71,167 patients who had recovered. Compared to the previous week, the world saw 38,38,905 new patients, 61,659 deaths and 38,97,832 patients who had recovered. In India we saw 2,11,242 new patients, 2,181 deaths and 2,61,821 patients who had recovered. The people who have been vaccinated in India saw a sharp jump with the number touching 80.43 crore people who have been vaccinated. This includes both first and second vaccine and compares favourably with the 73.82 crore vaccinated people last week.

Coming to the markets, it would be a choppy and volatile week and one where there would be a negative bias at least for the earlier part of the week. Readers would recall that the markets were range bound at the end of July at the 53,000 mark on the BSESENSEX and 15.7K mark on the NIFTY, before they broke out and in under six weeks gained more than 10 per cent. This was a phenomenal gain and needs to be digested before any new gains could be made. I therefore believe we would have a very rough ride from hereon and one would have to be very careful.

The September series is up 950 points or 5.7 per cent and that is a very healthy gain at this point with two weeks to go. Bulls would like to build on it but bears will fight back. Sell on rallies and buy on sharp dips should be the order of the day in the coming week. If we correct substantially, we could see markets improving towards the end of the coming week. In case markets are net sideways, the anticipated rally may not take place immediately. Time to book profits and have some cash for a rainy day.

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