Allow the market to settle down before jumping in

The markets saw extreme volatility and lost on four of the five trading sessions on the back of global cues and the after-effects of LTCG. The Dow Jones and bond yields shook global markets and literally rattled them. The Dow Jones lost 1,330.06 points, or 5.50 per cent, to close at 24,190.90 points. With this loss, the index is off by 2,426 points from the intra-day high of 26,616 points made on January 26. The fall last week has brought the Dow Jones into negative territory for the calendar year 2018.

The Sensex lost 1,060.99 points, or 3.12 per cent, to close at 34,005.70 points. The Nifty was down 305.65 points, or 2.92 per cent, at 10,454.95 points. The market movement can be likened to the aftershocks of an earthquake. Many small seismic disturbances occur days after a major quake. Hereto the downward movement and volatility continues even though the budget was presented seven trading days ago. A cluster of reasons, including LTCG, global cues, profit taking and of course FII selling could all be attributed to the fall.

The RBI at its monetary policy review meeting kept interest rates unchanged, but the commentary has moved from being neutral to hawkish. Keeping in mind that crude oil prices are on the rise and could pose a severe threat to the Indian economy, caution by the RBI is warranted. The monetary policy committee vote to keep interest rates unchanged was 5:1, with the dissenting vote being in favour of raising rates. This is in stark contrast to the stance a couple of meetings ago where the tone was dovish and there were hopes of a rate cut. Now the scene has reversed and the possibility of a rate hike is looming large. Monsoon would play a big part in inflation being maintained or rising.

In the primary market, Aster DM Healthcare, which runs hospitals, clinics and pharmacies in the GCC and India, will offer shares for public subscription from today. The company has 19 hospitals, 98 clinics and 206 pharmacies, the bigger part of which is in the GCC and the smaller part is in southern India. The company’s total revenue is Rs 5,931 crore and profit after tax is Rs 266.7 crore. The EPS for FY17 is at Rs 4.28, which values the company at a PE multiple of 44.29-44.39 based on March 2017 numbers. The company in terms of revenues is a close second to the Apollo group of hospitals. The issue closes on Thursday, Feb. 15 and has a price band of Rs 180-190. With GCC operations being well set and fairly matured, the focus of the company is in India where the opportunity seems to be ever expanding. The company has a total of 4,754 beds and besides setting up new hospitals, it is also looking at the acquisition route to grow faster.

It has been decided that Indian stock indices would not trade overseas as they currently do in Singapore and Dubai. The exchanges would give notice and close down trading within six months. This is to ensure that liquidity from India is not sacrificed to trading overseas. This move would ensure that in the longer-term trading volumes in India would increase and the pressure that Singapore Nifty exerted on our markets would cease. This augurs well for Indian bourses and one would see higher volumes and better price discovery in future as well.

The week ahead has a trading holiday on Tuesday for Mahashivratri. This will ensure that people end Monday with neutral positions as with the current state of global markets, it makes little sense of having exposure, with global markets being open and our market shut. Volatility in the coming week would continue to dominate the two-sided movement we would witness.

The market has not bottomed and would take more time to do so. We are yet to find equilibrium and we have recovered 20 per cent from the difference of the highs and the lows so far. Be patient and allow the market to settle down before jumping in. We would have a time and value correction before we begin the next leg of the upward journey.

(The author is founder, Kejriwal Research and Investment Services)

Arun Kejriwal