Relief rally in the offing – Extent of same debatable

Trading in the calendar year began on a positive note with markets gaining on the first two trading sessions. They lost ground on the next three sessions with Friday witnessing a sharp sell-off.

BSESENSEX ended the week with losses of 940.37 points or 1.55 per cent to close at 59,900.37 points while NIFTY lost 245.85 points or 1.36 per cent to close at 17,859.45 points. The broader markets saw BSE100, BSE200 and BSE500 lose 1.32 per cent, 1.25 per cent and 1.17 per cent respectively. BSEMIDCAP lost 0.58 per cent while BSESMALLCAP lost 0.50 per cent.

The India Rupee remained unchanged at Rs 82.72 to the US dollar. Dow Jones began the new year on a negative note and lost on the first trading day. It then gained, lost and had a sharp rally on Friday, gaining a massive 700 points. The week ended with gains of 483.36 points or 1.46 per cent at 33,630.61 points.

There was one listing of a primary market issue from Radiant Cash Management Services Limited during the week. This issue had a poor response during subscription and the size of issue was reduced. The fresh issue which was for Rs 60 crore was reduced to Rs 54 crore, while the offer for sale of 331.25 lakh shares was reduced to 212.22 lakh shares. Further, even though the anchors were allotted shares at the top end of the price band of Rs 99, the remaining investors were allotted at the lower end of the price band of Rs 94. Merchant bankers were also allotted shares as part of their underwriting arrangement.

The share debuted on the bourses on Wednesday at Rs 99.30, a gain of Rs 5.30 or 5.63 per cent. They closed even higher at Rs 104.70, a gain of Rs 10.70 or 11.38 per cent. At the end of the week shares closed at Rs 107.95, a gain of Rs 13.95 or 14.84 per cent. The better performance of the share post listing is to do with the lower IPO size and it becoming imperative for the merchant bankers to justify their pricing and valuation for the company.

The IPO market has taken a break temporarily and is likely to become active after the celebration of the India festival, "SANKRANT" also popular for kite flying on 15th of January. One should see a sudden rush of IPOs post this day into the week ending just before the Union Budget is presented on Wednesday, the 1st of February. Parliament session would begin a day earlier on the 31st of January.

The week ahead would see a spate of results from the IT pack with TCS declaring results on Monday the 9th of January, HCL Tech and Infosys on Thursday the 12th of January and Wipro on Friday the 13th of January. This would give a good indication of what's happening in the IT space with cost pressures or pricing pressures and new order wins.

During the course of the last couple weeks of trading, the market seems to be making lower tops which is a bearish signal by itself. If one recalls, the lifetime highs were made on the 1st of December 2022. These were at levels of 63,583 on BSESENSEX and 18,887 on NIFTY. The next two lower tops were made on 14th December at 62,835 and 18,632 points respectively. The third and final one was made last week on 3rd January at 61,343 and 18,265 points. It is therefore imminent that if this bearish pattern is to be negated, we need to cross these levels at the very outset.

Monday would see our markets rising sharply on the back of positive news flow from the US as far as job data and possibility of interest rate hike not being as quick as anticipated happening. At the same time, one must remember that FPI's have been sellers over the last 11 consecutive days. Would they use the buoyancy on Monday to press further sales or turn positive? Not sure.

Coming to the markets in the week ahead, as already mentioned they would open positive on Monday. How much and how far this rally would go is debatable.

For the ensuing rally to be sustainable and meaningful, markets need to cross the first hurdle of the previous top of 61,343 and 18,265 and sustain them. Any failure to do so would result in further pressure as we would have made yet another lower top.

On the support side, strong support does exist at levels of 59,650-59,750 and 17,770-17,800 levels. Any violation of these levels could lead to a further fall of 0.5 per cent to 1 per cent which could be a swift one. My gut feel for the moment is that currently neither the breakout or the breakdown looks likely in the coming week. The strategy should be to sell on rallies and keep a sharp lookout on US markets for news flow.

Finally, budget expectations could start being talked about in another ten days' time when the present rally or move is over.

Trade cautiously.