April futures expiry to increase volatility, keep markets under pressure

New Delhi, April 21: Markets in the week gone by were driven by fear, war-mongering and panic. Of course, all of this leads to extreme volatility and sharp two-sided moves.

At the end of the four-day week which had a mid-week holiday on Wednesday, markets lost on three sessions and gained on just one. BSESENSEX lost 1,156.57 points or 1.57 per cent to close at 73,088.33 points while NIFTY lost 372.40 points or 1.65 per cent to close at 22,147.00 points. The broader markets saw BSE100, BSE200 and BSE500 lose 1.74 per cent, 1.82 per cent and 1.75 per cent respectively. BSEMIDCAP was down 2.21 per cent while BSESMALLCAP lost 0.96 per cent.

The Indian Rupee lost 6 paise or 0.07 per cent to close at Rs 83.47 to the US Dollar. Dow Jones lost on two of the five trading sessions and gained on three. At the end of the week, Dow ended as flat as a doormat and was up 3.16 points or 0.01 per cent to close at 37,986.40 points.

Information on the Israel-Iran conflict took its toll on markets. On Monday, markets opened weak and remained weak throughout the day. Tuesday saw yet another gap down opening and markets closing slightly higher than the opening, but negative. Wednesday was a holiday. Thursday was a swing day where we opened higher than the previous day’s close and then closed sharply lower. Friday was what could be described as a massive swing day where markets opened with a sharp downside gap and then gained throughout the day to close with substantial gains.

Thursday, April 18, saw BSESENSEX open at 73,183 points against the previous day’s close of 72,943 points. It then made an intraday high of 73,473 points and a low of 72,365 points before closing at 72,488 points. Similar levels on NIFTY were, open at 22,212 points against the previous day’s close of 22,148 points. It then made an intraday high of 22,326 points and an intraday low of 21,961 points before closing at 21,995 points. Friday, April 19, was the opposite of Thursday. Markets opened lower, went down marginally and then recovered sharply. The numbers are: BSESENSEX opened at 71,999 points, low 71,816 points , high 73,210 points and close 73,088 points. NIFTY opened on Friday at 21,861 points, made a low at 21,777 points, high at 22,179 points and closed at 22,147 points.

The above would give good indications about the increase in volatility and sharp intraday movement being witnessed.

IT companies have declared results and the little optimism generated by the declaration of TCS results last Friday has turned into disappointment post results from Wipro and Infosys. There is pain in the segment and currently, there is a struggle going on to maintain margins. I believe there is still a couple of quarters of pain left.

In primary market news, the follow-on offer from Vodafone Idea Limited is currently on and will close on Monday, April 22. At the end of two of the three days that the FPO is open, the issue is subscribed 54 per cent at the top end of the price band of Rs 10-11, with the QIB and HNI portion subscribed. Expect subscription levels to pick up on the last day as we get closer to closing time. The anchor portion of the issue saw keen interest and there were marquee names in the list. In what would be an interesting listing for the shares being offered through the FPO is the fact that they would list on Thursday, April 25, which also happens to be the expiry day for April futures. The opening price of Vodafone when the series began was Rs 13.67. The share has also been in the ban status for futures and options over the last few days on account of the exposure limits being crossed.

The issue from JNK India Limited would open on Tuesday, April 23 and close on Thursday, April 25. The issue consists of a fresh issue of Rs 300 crores and an offer for sale of 84,21,052 shares. The price band is Rs 395-415.

The company is into the manufacturing and assembling of process-fired heaters, reformers and cracking furnaces. (Together known as heating equipment). The company has capabilities in thermal designing, engineering, manufacturing, supplying, installing and commissioning. This equipment is required in refineries, petrochemicals and fertiliser plants.

The company reported revenues of Rs 407.30 crores for the year ended March 23 and a profit after tax of Rs 46.36 crores. The EPS for the year was Rs 9.51. For the nine months ended December 23, the revenues were Rs 253.39 crores and the profit after tax was Rs 46.21 crores. The EPS was Rs 9.49. Based on the EPS for the full year ended March 23, the PE multiple for the issue is 41.54-43.64. The comparable peers on a limited basis for the company are Thermax and BHEL, but limited to the supply of heat exchangers and not the balance business that these companies do. The company is into an interesting business and offers an investment opportunity for the medium to long term.

The week ahead sees April futures expire on Thursday. The current value of NIFTY is 22,147.00 points which is lower by 179.90 points or 0.81 per cent compared to the opening level of 22,326.90 points at the beginning of the series. The bulls have in the last week squandered away their hold on the series and over the next four days it would be difficult for them to regain lost ground. The geo-political situation makes things worse for the bulls and it appears with reasonable certainty that bears would take this series.

Coming to the markets in the week ahead, expect sharp volatility and two-sided market movement to be the order of the day. Recent lower tops made last week at 73,905 points on BSESENSEX and at 22,427 points on NIFTY would act as strong resistances in the immediate short term. If these do get violated, previous tops at 75,124 points and 22,775 would be very strong resistances. On the support side, lows made last week at 71,816 points and 21,777 points would act as strong supports. If these are violated, then one could see markets slipping to 71,100 and to 21,550 points respectively.

The strategy for the week would be to keep positions light overnight as the situation in the Gulf or the Middle-East is very fluid. There can always be breaking news on a daily basis. Action would continue in the large-cap and select mid-cap space only. Buy on sharp dips and sell on rallies, one saw plenty of such opportunities just last week.

Trade cautiously.