Markets will remain under pressure
As there is underlying weakness in the market, it would trade with a negative bias
Focus may shift to mid-& small-cap firms’ results
The period under review June 2nd-8th was a tough one for markets. They began the period with gains on Thursday but reversed and lost the momentum on Friday. Friday saw markets gain and then not only surrender all the gains but end in the red. The next three days saw markets losing ground even though the movement was choppy and volatile. At the end of the week, markets gained on just one day and lost on four days. BSE Sensex lost 488.68 points or 0.89 per cent to close at 54,892.49 points while Nifty lost 166.50 points or 1.02 per cent to close at 16,356.25 points.
Dow Jones gained on three of the five trading sessions and was up 367.04 points or 1.10 per cent to close at 33,180.14 points. In exactly a week's time from Wednesday, the US Fed would be meeting for yet another rate hike.
RBI raised rates at its monetary policy meet which concluded on Wednesday. RBI raised repo rates by 50 basis points to 4.90 per cent. This is the second hike in the current financial year 2022-23. Earlier it had hiked rates by 40 basis points in an off-cycle meet. RBI believes that inflation would remain high for another two quarters and would then fall below the tolerance level. It expects CPI inflation to remain at7.5 per cent in Q1, 7.4 per cent in Q2, 6.2 per cent in Q3 and 5.8 per cent in Q4. RBI believes that inflation would gradually slow down and expects inflation at 6.7 per cent for the year 2022-23.
In what appears to be a bizarre interpretation of the income tax rule, ESOPS converted into shares are taxed as the current year's income. This makes the tax rate a whopping 42 per cent forcing all professionals to sell shares on conversion to discharge tax liabilities. This makes it impossible for founders of start-ups to pay the taxes for the year and have no other choice but to sell shares. In a similar incident that happened a couple of days back in Policy Bazaar where the Chairman and CEO of the company were forced to sell shares to honour his tax liability. Investors on the other hand feel let down at the fact that such selling leads to price erosion. For the records, the company had listed in November 2021 and had issued shares at Rs 980. The share closed for trading on Wednesday at Rs 583.55. A simple suggestion to the tax authorities would be to look at these shares as long-term gains and avoid complications. In any case they have been given for service to the company for many years put together and these companies normally have no identifiable promoters. In case corrective action is not taken, this may become a reason for new investors to shy away from these new age companies in future.
In primary market news, shares of Aether Industries Limited listed on Friday. The company had issued shares at Rs 642 and they had a flying start gaining Rs 134.75 or 20.99 per cent on day one. Shares were locked at the upper circuit of 10 per cent at end of trading on Friday. During the remaining part of the period under review, they were range bound and closed at Rs 785.20, a gain of Rs 143.20 or 22.30 per cent. There is no primary market issues slated in the coming 7-10 days.
The period under review for the week June 9th-15th would be one where markets are under pressure and continue to remain volatile. They would trade with a negative bias. Immediate resistances would be at the highs of the period under review at 56,432 and 16,793 made on Thursday. If levels of 54,500 and 16,400 are broken we could see the downward move picking momentum. We have seen these levels being broken but have regained to remain marginally below the levels mentioned. We need one nudge from global cues to register a sharp fall. Support exists at 53,400 and 15,900 levels will act as strong support.
The trading strategy would be to sell on rallies and buy only on sharp falls. While levels of below 16,000 and 53,600 may or may not happen, there is underlying weakness in the market. When that emerges in the values or what is the trigger is uncertain. Suffice to say, trade cautiously.
(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)
