Be cautious ahead of F&O expiry, Budget

Global markets have been falling sharply and have taken their toll on all stakeholders with India being no exception. While we did see a sharp reversal on the likes that Dow Jones did on Tuesday, it wasn't enough to recover the losses over the last four days. BSE Sensex closed the period January 18-25 under review with losses of 2,896.71 points or 5.01 per cent. NSE Nifty lost 835.10 points or 4.83 per cent to close at 17,277.95 points. The lows made were at 56,409.63 points on BSE Sensex and 16,836.80 points on the Nifty. This suggests that the indices lost significantly higher with BSE Sensex down close to 1,100 points and Nifty close to 315 points at its lowest level during the day. We have lost on four trading sessions and managed small gains on Tuesday in a dramatic reversal.

Dow Jones too had a dramatic turnaround where it gained from a negative 1,110 points to close a positive 100 points yesterday. Dow Jones over the last five days has lost 1,547 points or 4.31 per cent. Even as this article is being written, Dow Futures are down about 200 points, while S&P and Nasdaq are showing bigger losses.

If one looks at world markets today (Tuesday) they were down across Asia except India and are up in Europe. How they will end once America opens up is anybody's guess.

Incidentally, the 2-day US FED meeting on Jan 25-26 is in progress and it's expected to raise interest rates. We have a national holiday on Wednesday and will be saved the worrying impact of FED raising or not raising interest rates. It would be done and dusted when we resume trading on Thursday.

Coming to the week ahead it is very interestingly placed with Thursday seeing January futures expiring. The current value at 17,277.95 points is 74 points ahead in January series. With a volatile day ahead, it's too close for comfort for either the bulls or the bears and the series could go either way. The Union budget would be presented on Tuesday (February 1) which is the last day of the reporting period January 27-February 1. With a mega State-run (LIC) IPO expected to file its document and go public in the coming 60 days, expect no adverse measures for the stock market in the ensuing budget. There are elections to five States happening in February and the ruling dispensation would not seem to disturb these people at least on account of the budget.

There were rumours about the expected increase in rate of tax on account of capital gains which the ministry was quick to deny. On expectations from the budget, government spending on infra is likely to rise and this is expected to kick in a multiplier effect. There are unconfirmed reports that to maximise benefits expected from the various PLI schemes announced from time to time, there could be some benefits announced for capital expenditure for a one-year window or a short term. This would spur incentive and give momentum to the economy.

The son of Kolkata-based Lux Industries and a group of his associates have benefited of insider trading to the extent of Rs2.84 crores as mentioned or alleged by SEBI in its interim order. While the company has sent a rejoinder to the exchange denying the same, the fact of the matter remains that the share was trading at the lower circuit of 20 per cent. In one day, the share has lost over Rs2,100 crores in market capitalisation (mcap) and the promoters own close to 75 per cent of the company. Call it indiscretion or whatever, the fact remains that the company will lose its top-ranking status in the sector here on. Most unfortunate event.

We have a break to recover from the madness that the markets have been through lately and get time to recover from a mid-week holiday. Thursday expiry would be volatile and extremely choppy with nothing separating the bulls and the bears. The finale of the week would be the budget itself with little or almost nothing known about its outcome at this point of time.

The strategy should be to buy on sharp dips and sell on rallies. There would be a tendency for markets to take baby steps as it goes about trying to recover. Use movement to your advantage and avoid taking positions ahead of holidays.

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