Festival mood in markets with liquidity driving uptrend

New Delhi: In the last three to four weeks, one finds that a single day’s movement, whether upward or downward, makes the trend or direction of the whole week. In the previous week, it was the movement on Thursday (Sep 12) while in the week prior to that, it was on Friday (Sep 6).

While Thursday was a sharp up day, Friday was the opposite and was a down day. In a week where markets gained on three of the five trading sessions, one saw the BSESENSEX gain 1,707.01 points, or 2.10 per cent, to close at 82,890.94 points while NIFTY gained 504.35 points, or 2.03 per cent, to close at 25,356.80 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.88 per cent, 1.96 per cent, and 1.90 per cent respectively. BSEMIDCAP was up 1.52 per cent while BSESMALLCAP was up 2.05 per cent. Gains made on Thursday were 1,439 points on BSE SENSEX and 470 points on NIFTY.

The Indian Rupee gained 6 paise or 0.07 per cent to close at Rs 83.89 to the US Dollar. Dow Jones had another terrific week gaining 1,048.37 points, or 2.60 per cent, to close at 41,393.78 points. This comes ahead of the week in which the FED meets to decide on interest rates where it is believed that there would be a cut of between 25-50 basis points. The meeting is slated for Tuesday-Wednesday and the impact of the same on the Indian markets would be felt on Thursday. The ECB had cut rates by 25 basis points earlier this week. While a cut in the US is a certainty, the impact on markets post the cut is causing confusion amongst traders. It is therefore best to leave it at that and allow markets to react post the cut based on what markets actually do.

In primary markets, we had four issues opening and closing during the week gone by. One of them, Bajaj Housing Finance Ltd has created a new record in terms of subscription and number of applications. The issue was for a size of Rs 6,560 crore and raised a whopping Rs 3,24,022 crore through 90.73 lakh applications. No previous issue has received so much money or so many applications ever before. This shows the liquidity in the markets, euphoria towards IPOs and the craze that people have for making a quick buck through an IPO.

The issue is priced at Rs 70 and if the grey market is any indicator, the share should list at a premium of over 100 per cent. At this price, the company would have a market capitalisation of over Rs one lakh crore on listing. The price to book the company would be a steep six times and over and would become a reason for the entire housing finance sector to be re-rated as the difference between the peer and the others try to catch up. Expect the rest of the sector to move up on the back of its strong showing.

The AUM of the mutual fund industry continues to receive excellent responses from investors across categories. The AUM of the industry has risen by Rs 1.07 lakh crore in the month of August to Rs 66.04 lakh crore. Part of this is the retail segment and they seem to be a very big driving force of liquidity that the domestic institutions are flooded with.

Markets hit new fresh intraday and closing highs on Thursday, September 12. The levels were 83,116.19 points on an intraday basis and 82,962.71 points on closing basis on BSESENSEX and 25,433.35 points and 25,388.90 points on NIFTY. These levels would become important as markets continue to build on them in their journey forward.

The week ahead would see a couple of issues open and close during the week. Besides this, there would be five issues being listed during the week with three of them, including Bajaj Housing Finance, happening on Monday. Monday would include the listing of Bajaj Housing Finance which would be very keenly watched as well.

Coming to the markets in the week ahead, it would be driven by events and news flow. Monday would see three listings and the performance of the same would have a bearing on the housing finance sector as a whole and the market as well as a new one lakh crore market cap company getting listed. The market cap at the issue price was roughly Rs 58,000 crore. Tuesday and Wednesday in the US would see the FED deciding on interest rates. The way markets in the US take the rate cut quantum and the commentary thereafter would have a direct bearing on our markets on Thursday.

Key supports for the markets are the psychological levels of 25,000 on NIFTY and 81,800 on BSESENSEX. If these are violated, support exists at the previous low made at around 24,850 and 81,500 points respectively. On the upside, the highs made on an intraday basis on Thursday would act as minor resistances. If these are broken upwards with momentum we could see up to a three percent up move over the coming 5-7 days from the levels of 83,100 and 25,430 points.

The strategy for the week would be to keep positions light on Wednesday prior to the US Fed announcement as that could be a very volatile and irrational day. Trade for the first three days with longs and strict losses but reducing overnight exposure on Wednesday. Post FED event fresh positions may be initiated.

While momentum is in favour of bulls, one should be cautious as we are in uncharted territory and the same should be backed by strict stop losses.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)