Time for cautious trading in choppy market

The stock markets were extremely choppy in the period under review September 30-October 6. Markets lost on the first two days of the period, gained sharply over the next two and made a very negative downward movement on the 5th day. This negative movement was on the back of markets moving higher on Wednesday compared to the previous day, but closing significantly lower. This indicates weakness in the markets in the coming days and would force us to take a biased or negative view in the coming days. BSE Sensex lost 223.57 points or 0.38 per cent in the period to close at 59,189.70 points, while Nifty lost 65.30 points or 0.37 per cent to close at 17,646 points. The intraday highs made on Wednesday were at 59,963.57 points on BSE Sensex and 17,884.60 points on Nifty.

The period under review began with September futures which ended on a weak note on Thursday (September 30). For the series, it was up 981.25 points or 5.90 per cent to close at 17,618.15 points. Trading for the new October series began on a weak note and Nifty was down 83 points on the first day.

In primary market news, the IPO from Aditya Birla Sun Life AMC Limited closed for subscription and was subscribed 5.25 times. QIB portion was subscribed 10.36 times, HNI portion 4.39 times, Retail portion was subscribed 3.24 times and Shareholder preferential quota was subscribed 1.68 times. There were 15.66 lakh applications.

On the side-lines of this issue, Standard Life sold 1.06 cr shares of HDFC AMC, while this issue was on and garnered close to Rs3,000 crore. The size of their sale was more than the amount raised by Aditya Birla AMC through their issue.

Shares of Paras Defence and Space Technologies Limited, which is the highest response receiving issue since 2007, debuted on the bourses on Friday and had a lift-off on day one. Shares which were issued at Rs175 closed at the upper circuit of Rs498.75 on BSE, a gain of Rs 323.75 or 185 per cent. It's a great start and the last time one saw anything near this kind of gains was in the case of IRCTC in October 2019.

Shares of Paras defence hit the upper circuit on all the three days of trading thereafter and closed at Rs 577.25. The gains since listing are Rs 402.25 or 229.85 per cent.

In what could be termed as buy the rumour and sell the fact, Moody's upgrade of credit ratings saw markets discount the news one day earlier. Smart people expected the rating review to happen and accordingly markets rose very strongly on Tuesday in anticipation of the event. Post the announcement, we saw the correction or the discount of the news midway through Wednesday. Moody's has changed the rating for India from negative to stable.

Looking at the massive subscription from HNI's in IPOs, Sebi has proposed changes in the way subscription happens in IPOs for the HNI category. Hence, forward in the HNI category which is 15 per cent of the issue size, there would be two categories of 5% and 10%. The first category would be meant for investors applying in the category of Rs 2 lakhs to 10 lakhs and the second would be for applications as they happen now, and would be for people above 10 lakhs. This would give a better allotment to the smaller HNI's compared to the leveraged HNI who typically has a much larger ticket size which typically starts from Rs50 cr plus.

With this anxiety expressed by Sebi with regards to demand distortion by HNIs, not sure whether at the ensuing RBI monetary policy review meet being held during October 6-8, the proposal to restrict NBFC funding to HNIs of Rs1 cr at maximum will be introduced. This proposal was indicated by RBI in January 2021.

The week ahead will continue to be choppy and volatile. While markets have not made any new tops in the period under review, they gave opportunities for trading and booking of profits. It also gave buying opportunities. The strategy should continue for the period under review of October 7 to October 13. Dow Jones too, is giving confusing signals and could crack in the coming days. With crude at a new three-year high and crossing $82.50, there are serious concerns on the inflation front. Further Chinese markets would open after a week's holiday and events like Evergrande default will haunt those markets.

Trade cautiously, use any rallies to sell and sharp dips to buy. Use upcoming quarterly results to decide which companies and sectors look good.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)