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Expect corrections after sharp rally

The strategy for the period ahead to exit momentum stocks, which have given good returns

Expect corrections after sharp rally
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The present correction, which is underway, is very healthy and long overdue for the market. A rally of over 10,000 points for BSE Sensex and 3,200 points for Nifty happened in just about a month without any meaningful correction. If Wednesday’s profit taking or correction continues for a few days, it would be the best thing for the markets

Markets under pressure:

  • BSE Sensex gained on 2 of 5 sessions
  • NSE Nifty up on 3 sessions
  • Mkts seem to be in much needed correction
  • TCS results on Thursday

Markets in July 4-10 period continued to make new highs on regular intervals. The latest was on Tuesday (July 9) when BSE Sensex made an intraday high of 80,397.17 points and a closing high off 80,351.64 points. The intraday high for Nifty was at 24,443.60 points and the closing high was at 24,433.20 points. Markets are looking over-heated, but the bulls just don’t want to give up. On Wednesday, the bears allowed the bulls to make new intraday highs and then attacked across the board. Markets seem to have entered a period of much needed correction whatever be the length and duration. Wednesday’s intraday highs were at 80,481.36 points on BSE Sensex and at 24,461.05 points for Nifty.

BSE Sensex gained on two of the five sessions and lost on three. It was down 62.03 points or 0.08 per cent to close at 79,924.77 points, while Nifty, which gained on three of the five sessions, was up 37.95 points or 0.16 per centto close at 24,324.45 points.

Dow Jones gained on one of the four trading sessions and lost on three. Thursday (July 4) was a holiday on account of Independence Day. Dow lost very marginally and was down 40.58 points or 0.10 per cent to close at 39,291.27 points.

Wednesday (July 10) saw two listings take place. The first to list was Emcure Pharmaceuticals Limited, which had issued shares at Rs1,008. The discovered price was Rs1,325, a gain of Rs317 or 31.45 per cent. By the end of the day, the share gained some ground and closed at Rs1,358.85, a gain of Rs350.85 or 34.80 per cent.

The second share to list also on Wednesday was Bansal Wires Ltd. The company had issued shares at Rs256. The discovered price was Rs352.05, a gain of Rs96.05 or 37.51 per cent. By the end of the day, the share lost some ground and closed lower at Rs350.30, a gain of Rs94.30 or 36.83 per cent.

There are no mainboard IPOs currently and probably the markets are awaiting the Union Budget due on July 23, which is now under two weeks away. The present correction, which is underway is very healthy and long overdue for the market. A rally of over 10,000 points on the BSE Sensex and 3,200 points on Nifty have happened in just about a month without any meaningful correction. If Wednesday’s profit taking or correction continues for a few days, it would be the best thing for the markets. It would give time for markets to get set for the budget and then build on those sectors which get positively impacted post the budget.

Coming to the July 11-17 period, expect markets to remain under some pressure as the rally has been quite sharp. Some corrections will make markets healthier without doubt. TCS would declare results on Thursday and set the trend for first quarter results. The IT pack has been under pressure for a few quarters and has under-performed the benchmark indices. Will these results act as a turnround for the sector is a million-dollar question.

The strategy for the period ahead would be simple. Exit momentum stocks, which have given good returns. In a market which falls, these stocks become the most vulnerable. With profit taking likely to continue its time to take money off the table and await corrections.

There is also a circular from the NSE where 1,010 stocks have been excluded from the collateral list with effect from August 1. This would cause liquidity issues going forward and the impact would be seen sooner than later.

It’s time to be cautious and avoid large positions till the budget or until a meaningful correction happens. Trade cautiously.

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

Arun Kejriwal
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