Stick to large-cap stocks amid volatility

The April 7-13 period under review saw markets gain on just one trading session and lose on the remaining four sessions. BSE Sensex lost 1,271.45 points or 2.18 per cent to close at 58,338.93 points, while Nifty lost 332 points or 1.90 per cent to close at 17,475.65 points. Markets have a nasty habit of catching everyone on the wrong foot and they did so this week. While they fell on four days, the fall was not enough to cause deep worry. The best part of this fall has been that it is giving an exit to everyone who so desires. Different stocks move on different days and it seems no one is as yet complaining.

Dow Jones lost on 3 of the last five sessions. It lost 422 points or 1.21 per cent to close at 34,220.36 points.

Veranda Learning Solutions Limited, which had launched a Rs200 crore IPO at Rs137 listed on Monday. The discovered price on BSE was Rs157, while it was Rs125 on NSE. The share trades in trade-to-trade segment for ten trading sessions. While the lower price on NSE did hit upper circuits on NSE on both Tuesday and Wednesday, it was flat on BSE on Tuesday and allowed the difference to reduce. The closing price on Wednesday was Rs144.65 on NSE and Rs171.30 on BSE. It has been a very long time when there has been such a large difference in the discovered price between the two exchanges. Knowing NSE, they would never admit there was a system glitch on NSE but people who understand maintain that there was a glitch. While this cannot be rectified, there should be a way where such price difference between two exchanges can converge. Hope the suggestion is taken in the right spirit.

Shares of Hari Om Pipes which had tapped the capital markets with its issue for 2.54 crore shares and allotted at Rs153 listed on Wednesday. This company chose not to have even a digital road show to make people aware of the company. However, it had a listing ceremony at Hyderabad on Wednesday. Strange are the ways people address their IPO's. The share listed at Rs 214 on BSE and Rs 220 on NSE. They closed at the upper circuit of Rs 224.70 and Rs 231 respectively.

There is action happening on the proposed LIC IPO as well. The company is expected to give a business update in the coming week which will highlight the salient features of the company's performance. It has received it appears the government clearance to hit the markets and talks of a substantial downward revision in price. The expected valuation of the company based on EV or embedded value would be around 1.25 times and this has been reduced significantly to make the share issue very attractive and a must have in portfolio for all investors. To add to the demand, the government has informed that there would be no dilution post the offering for a minimum of 2 years. The size of the issue is likely to be increased from 5 per cent to 7.5 per cent as the share issue price is being reduced significantly.

The period ahead is a short three-day week beginning from Monday (April 11) till Wednesday (April 13). Thursday and Friday are trading holidays in India with Friday being a global trading holiday. Markets are quite circumspect at this point of time and seem to moving in some sort of a sideways move. We are close to immediate supports on the lower side and there is no reason why markets should not bounce from these levels in the shorter term. If, however, they fail to bounce and assume BSE Sensex loses another 500 points and Nifty 150 points, markets could have entered the danger zone. In this case, there could be some sharp downward moves that shake the market.

The strategy for the week would be to sell on rallies and buy only on sharp dips. As mentioned, the downward pressure could make markets vulnerable at lower levels, so a close watch should be kept at lower levels. The movement being widespread in the market one should continue to look at large-caps and select mid-cap and small-cap stocks. In case LIC IPO does happen as being talked about, it would bring clarity for a large number of issues which are waiting on the side-lines to launch their issues as well.

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