Range-bound trade likely as geopolitical cues loom

The trading range in which markets have been moving, has shifted downward with support around 25,500-25,550 points. Resistance remains at 26,300 and higher up at 26,500 points. With last week’s fall, the higher levels look that much more distant and support levels look to close for comfort

The week gone by was one which markets would like to forget in a hurry. We lost on all five days of the week and are back where we began the rally, all over again. When the week closed on Friday, it looked like next week would be yet another new high and now it appears as how much lower can it go. Very clearly, markets teaches us all a lot of things, including hope and pessimism, expectations and assumptions. What we have to learn on our own is tempering all of this and taking it in our stride.

BSE-SENSEX lost 2,185.77 points or 2.55 per cent to close at 83,576.24 points while NIFTY lost 645.25 points or 2.45 per cent to close at 25,683.30 points. BANK-NIFTY lost 899.40 points or 1.50 per cent to close at 59,251.55 points. The broader indices; BSE-100, BSE-200 and BSE-500 lost 2.44 per cent, 2.54 per cent and 2.62 per cent respectively.

BSE-MIDCAP lost 2.60 per cent while BSE-SMALLCAP lost 3.87 per cent. All the sectorial indices on BSE except BSE CONSUMER DURABLE ended in the red with the biggest loser being BSE-OIL&GAS, down 5.69 per cent.

The NSE-NIFTY fell from the intraday high of 26,340 made on Friday the 2nd of January in five trading sessions to a low of 25,623 points, a fall of 717 points. Effectively, this was the entire trading range over the last few months.

The Indian Rupee lost 3 paisa or 0.03 per cent to close at Rs 90.16. Dow Jones was riding a wave and gained on four of the five trading sessions and lost on just one. It was up 1,121.68 points or 2.32 per cent to close at 49,504. 07 points.

There are two IPOs on the main board in the week ahead. One, Bharat Coking Coal Limited has opened on Friday the 9th January and would close on Tuesday the 13th of January. The price band of the issue is Rs 21-23. The issue was subscribed 8.09 times on day one.

The second issue is from Amagi Media Labs Limited which is tapping the capital markets with its issue which opens on Tuesday the 13th of January and closes on Friday the 16th of January. The price band of the issue is Rs 343-361. The issue consists of a fresh issue of Rs 816 crores and an offer for sale of 2.69 crore shares.

The company is Bengaluru based and simplifies complexity of media operations. It eliminates the traditional requirement of having ‘OB’ vans for outdoor events and moves the entire hardware and back office required, to cloud. It then offers these services through a ‘SAAS’ model.

Amagi offers these services globally and currently roughly 73 per cent of revenues come from USA, 17 per cent from Europe and the rest from the rest of the world. The business can also be described as a glass to glass offering- which means from camera to your device, which could be a mobile phone or a television set.

To monetize revenue it can personalize advertising to any extent. Total revenues were Rs 1,163 crores for the year ended March 25 and Rs 705 crores in the first six months of the current financial year. The company enjoys gross margins of 69 per cent but made losses at the PAT level last year. EBITDA which was minus 21 per cent last year has moved to plus 8 per cent in the first six months and the company is PAT positive now.

There is no PE multiple as there is no EPS. Based on six months earnings it would look expensive no doubt. Investment in the company should only be made looking at the opportunity and the fact that this is a new technology which has just taken off and is becoming popular, with miles to go. There is hardly any competition for the company at present. Investment is warranted only for the medium to long term.

Geo-political tensions have increased with Trump now looking to impose tariffs of 500 per cent on China, India, Brazil and Russia because of Russian oil imports. In effect while South Africa is not in the picture, it’s effectively an assault on ‘BRICS’.

The USA has also withdrawn from all the UN associations, very clearly signaling that he does not want to hear about anything that he does being called out. Not sure whether history books a few decades from now will refer to Trump as a ‘Dictator’.

He also wants Greenland which is owned by Denmark. Not sure whether this would allow China to annex Taiwan on similar grounds as was done by USA in the case of Venezuela. Tough options and times ahead for all of us.

Coming to the markets, we are currently heavily influenced by geo-political global cues which are not the best. FII inflows have been negative for a long time and are discounted. The rupee is under pressure and while the economy has been able to withstand global tariff pressures with multi trade deals, there is a nagging doubt about what next.

I believe things will pass, it’s only a matter of time. Till then one will have to live with what happens. Budget at the beginning of February will also throw light on how India prepares to face the upcoming uncertain times.

The trading range in which markets have been moving, has shifted downward with support around 25,500-25,550 points. Resistance remains at 26,300 and higher up at 26,500 points. With last week’s fall, the higher levels look that much more distant and support levels look to close for comfort. Tough volatile times ahead of us. Trade cautiously.

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