Post-war reconciliation, markets need to tackle other issues too

By Arun Kejriwal

Mumbai, March 6 (IANS): Markets were jittery and highly volatile due to global tensions between Ukraine and Russia. There has been an unprecedented rise in the prices of crude oil and gas and many other commodities. Some countries in the Middle East are worried about the food supply because they import wheat from these two countries. They fear they will be out of stock in the next two months if nothing is done.

BSESENSEX lost 1,524.71 points or 2.73% to close at 54,333.81 points. NIFTY lost 413.05 points or 2.48% to close at 16,245.35 points. In the process, both benchmarks hit new lows, breaking those of the previous Thursday (February 24) when hostilities broke out. The new lows were 53,887.72 points on BSESENSEX and 16,133.80 points on NIFTY. The broader markets saw BSE100, BSE200 and BSE500 lose 2.27%, 2.22% and 2.06% respectively. BSEMIDCAP lost 2.35% while BSESMALLCAP lost 0.62%.

The Indian rupee was volatile and under pressure and lost 87 paisa or 1.16% to close at Rs 76.16 to the US dollar. Dow Jones ended the week with losses of 443.95 points or 1.30% to close at 33,614.80 points.

Markets have seen many of the major stocks register 52-week lows in recent weeks of trading. The main losers for the week were shares in the automotive sector, with Maruti losing 1,111 rupees or 13.30% to close at 7,244 rupees. On the winning side were the metals sector and metal stocks, whether steel or otherwise. Many PSU shares also gained as they are expected to declare large dividends in the remaining period of the fiscal year and help cover some of the shortfall through the deferred sale of LIC’s stake. .

The DIPAM secretary had pointed out that the sale of the 5% stake could be delayed because the global conditions are not the best. This is not just a few weeks delay as the DRHP should be updated as it currently reflects figures for the half year ended September 2021. The company should be expected to provide figures for the period completed in December 2021 so they get a few months to bring the issue. This should also likely include a new “intrinsic value” valuation report as of December 31, 2021.

While this should give companies tied to the IPO and waiting on the sidelines to exploit the markets some relief, the falling markets have also hit their valuations hard. Additional new rules on underwriting IPOs would come into effect from April 1, making IPOs a bit more difficult to underwrite in the HNI segment. The new rules would ensure that during the first half of April, everyone would be waiting for the first brave heart to operate the market under the new rules.

The conflict between Ukraine and Russia has entered the 11th day and it is unclear how long it will last. Assuming things calm down on that front, hopefully in the next few days, are we to assume global markets are going wild? Knee-jerk reaction maybe, beyond that, not sure. The United States is seeing the creation of new jobs and the number of people getting jobs is growing rapidly. It’s also fueling inflation fairly quickly and it’s unclear what kind of interest hike the FED would make later this month. When it comes to inflation, it’s not just a US issue but a global one. War is not helping matters either, and rising global fuel prices, whether crude oil or natural gas, are another cause for concern.

Solving the problems after the installation of Ukraine and Russia will be a delicate matter and will require a lot of diplomacy and time to solve. Additionally, FIIs continue to remain short and sell aggressively even on days when markets reach new lows. While national institutions have been aggressive buyers and appear to be matching the sale of FIIs to some degree, one wonders why? When you know the intention of the seller, let him sell and when it appears that he is more or less done, start buying. I’m not a fund manager, but I try to give my two bits. Some data points, FIIs sold on a net basis Rs 45,720 crore in the month of February while DIIs bought Rs 42,084 crore. In the current month, FIIs sold Rs 18,614 crore while DIIs bought Rs 12,599 crore. Allow them to sell for a few days or maybe a week without matching their sales, and they’ll probably be done selling or tired of selling at such low levels.

Besides the global tension, we have national news where elections in all five states will have exit polls announced Monday night. The results will start from Thursday, March 10 in the morning. If the results favored the government in power, there would be some movement in the benchmarks to the positive side. This event could bring some relief to our markets in the face of global signals.

Coming to what an investor should do in the markets right now. We are overshadowed by global indices and they don’t seem to be disappearing in a hurry. Although there are volatile movements depending on the day’s events, the markets have their hands full of worries on various fronts. In such a scenario, it is best to stay largely clear. Safety would remain by trading only in large cap stocks where volatility is lower and comfort much higher. As the FII sells and sells a particular stock, the prices go down, the stock tends to go up once the sale goes down. In other words, buy large cap stocks on steep declines and keep selling on rallies. With the fiscal year ending in just three weeks and towards the end of the year, expect domestic funds to engage in NAV support. In short, trade light and, more importantly, trade cautiously.