Markets look tired but expiry could change things

 Markets were open for four trading sessions in the previous week as there was a trading holiday on Monday. 

They were a little volatile but managed to close with small gains. 

There has been sector rotation with banking being at the forefront on Wednesday led by sugar stocks and then fertilizer and finally railway stocks.

What could be a cause of concern going forward is the volumes in the fertilizer stocks when they gained sharply. 

BSE SENSEX gained on three of the four sessions while it lost on one. 

NIFTY on the other hand gained on two and lost on two sessions.

At the end of the four-day week, BSE SENSEX gained 217.13 points or 0.28 per cent to close at 77,209.90 points while NIFTY gained 35.50 points or 0.15 per cent to close at 23,501.10 points.

The broader markets saw BSE 100 and BSE 200 lose 0.04 per cent and 0.14 per cent respectively while BSE 500 gained 0.04 per cent. BSE MIDCAP was down 0.20 per cent while BSE SMALLCAP was up 1.44 per cent.

The pace at which the BSE SMALLCAP and BSE MIDCAP indices have risen is a cause for concern and yet another fund house has raised valuation concerns in these segments.

The Indian Rupee gained 3 paisa or 0.04 per cent to close at Rs 83.53 to the US Dollar. Dow Jones gained on all four trading sessions of the week and gained 561.17 points or 1.45 per cent to close at 39,150.33 points.

In primary market news, we had one listing, and two issues opening and closing for subscriptions while yet another issue had opened and would close in the following week. Two new issues would open and close in the coming week.

The issue from Le Travenues Technology Limited who had issued shares at Rs 93 debuted on Tuesday, the 18th of June. Shares closed day one at Rs 161.99, a gain of Rs 68.99 or 74.88 per cent.

By the weekend the share gained further and closed at Rs 169.18, a gain of Rs 76.18 or 81.91 per cent.

The issue from Dee Development Engineers Limited who had issued shares in a price band of Rs 193-203 received an excellent response and was oversubscribed 102.32 times. The QIB portion was subscribed 206.54 times, the HNI portion subscribed 148.99 times and the Retail portion subscribed 23.21 times. There were 20.61 lakh applications in all.

The second issue was from Akme Fintrade (India) Limited which had issued shares in a price band of Rs 114-120. The issue was subscribed overall 54.24 times with QIB portion subscribed 28.12 times, HNI portion subscribed 129.79 times and Retail portion subscribed 44.14 times. There were 12.07 lakh applications. 

The QIB portion response was comparatively muted if one looks at other issues and even the HNI response in this issue. This was probably because the company has higher NPA's and is in a competitive landscape environment in the NBFC space.

The third issue was from Stanley Lifestyles Limited which opened on Friday and would close on Tuesday the issue was subscribed 1.44 times on the first day. The price band is Rs 351-369.

The week ahead sees the issue from Allied Blenders and Distillers Limited open on Tuesday the 25th of June and close on Thursday the 27th of June. 

The issue consists of a fresh issue of Rs 1,000 crores and an offer for sale of Rs 500 crores in a price band of Rs 267-281.

The company has a distillery in the state of Telangana and 32 bottling plants across the country. 

Its brand 'OFFICERS CHOICE' has been the world's largest-selling whisky by volume during 2016-2019. The company has been under stress and is raising money through the IPO to retire debt to the extent of Rs 720 crores. 

Further, prior to going public, the promoter has rationalised the board and separated ownership and management. The new board is entirely professional and would entail a saving of rupees 93 crores in terms of compensation to promoters going forward.

The repayment of interest and this compensation would entail a total saving of over rupees 200 crores in the financial year ending March 25. 

This would change the financials of the company which has just about been positive.

Considering the infrastructure, prospects post rationalisation and improvement in margins, it appears an investment which is warranted considering rising demand, socio-economic acceptance of liquor and growing aspirations.

The second issue is from Vraj Iron and Steel Limited which is tapping the capital markets with its fresh issue of rupees 171 crores in a price band of Rs 195-207. The issue opens on Wednesday the 26th of June and closes on Friday the 28th of June. 

The company manufactures M S Billets and TMT bars and uses the sponge iron route for doing so.

It is located in Chhattisgarh and has its plants at Raipur and Bilaspur. To better use the flue gas, it has a waste recovery plant and generates power which helps in the reduction of cost. 

The object of the issue is to raise money for the expansion of sponge iron capacity and MS Billets at Bilaspur and repayment of a loan taken from the bank for funding this project in the interim.

The issue is attractively priced and offers scope for appreciation in the medium term. There could also be listing gains looking at the market mood.

The week ahead sees June futures expire on Thursday. The current value of the June series at 23,501.10 points is 1,012.45 points or 4.50 per cent higher than the start of the series. Bulls are very well placed currently and have the upper hand considering we have a mere four days to expiry.

Even though markets seem to be tiring out and are finding it difficult to hold on, the momentum and the fact that it's a mere four days to go, would ensure that they win the series. They may at best concede some ground. 

One needs to remember that FPIs have been covering their shorts this series after the results of the general elections were announced on 4th June.

Markets seem to be trading in a broad range where 23,650-23,700 is a top at the moment on NIFTY and 22,800-850 a bottom. 

These levels seem difficult to be taken out currently and it should be a tough time to break out. 

The biggest driver in the immediate future is the budget which could happen during the period 18th-23rd July. This event has the potential to make the markets break in either direction.

The strategy for the week ahead would be to remain cautious with expiry happening. 

The bears led by FPIs will try to bounce back to the extent possible. Further there would be little or no news flow as well. 

Sector rotation is already happening and new stock ideas are difficult to come by. In such a scenario its advisable to play safe and take some money off the table. Keep the money aside for a day when new ideas emerge.

In conclusion, trade cautiously in a week where volatility is likely to rise on account of expiry as the bulls and bears intensify their action. (Arun Kejriwal is the founder of Kejriwal Research and Investment Services.