Use volatility to pick favourite stocks

The week ended had four trading days and saw two days of gains and two of losses. The intraday picture, of course was completely different because of huge swings. The market opened stronger each time on the back of global cues but was unable to hold on to the same. The final outcome for the week was a flat market with the Sensex gaining 5 points, or 0.01 per cent, to close at 34,010.76 points. The Nifty lost 2.65 points, or 0.03 per cent, to close at 10,452.30 points. In contrast, the Dow Jones gained 1,028.48 points, or 4.08 per cent, to close at 25,219.38 points.

A major scam has hit the country in the form of ‘LOU’ (letters of undertaking). The second largest PSU bank, Punjab National Bank, is in the thick of Rs 11,300 crore hit. There would be repercussions on many other banks where money was effectively taken without collaterals or adequate assets.

The people involved are diamantaire Nirav Modi and his family and his maternal uncle Mehul Choksi, who owns Gitanjali Gems and the group companies. PNB during the four days has lost Rs 31.15, or 24.79 per cent, to close at Rs 125.65. Gitanjali Gems has lost significantly more and is down Rs 21.15, or 56.32 per cent, at Rs 37.55.

In the primary market, the issue from Aster DM Healthcare was subscribed 1.31 times. The QIB portion was subscribed 1.31 times while HNI was undersubscribed at 0.55 times. The retail portion was subscribed 1.18 times. Yet another example where HNIs have not subscribed because there was no active grey market in the share and hence there was no way that the same could get subscribed 100 times or more by HNIs. The 100 times level is a benchmark for getting leveraged funds at a margin of about 1  per cent.

 February series futures expiry is days away, but the market has turned nervous and is completely indecisive. The same stock in which optimism was huge sees no interest even though the share is available 10 per cent lower.

Interestingly, results for the quarter ended December 2017 have been better and showed growth. But the optimism has given way to one of reluctance but there’s agreement that the correction may not be very severe, though the market would undergo a time correction. This could be a couple of weeks to a couple of months and may extend to June-July when the outcome of the monsoon would be clearer.

The mood has clearly turned and while domestic mutual fund flows through SIP have been very optimistic and encouraging, February and March would be challenging months. Even in normal circumstances, priorities in March change to meeting other obligations, say tax and tax saving schemes and 80 C benefits. It would be interesting to see whether the SIP inflow gets impacted or remains unchanged.

There are no main-board primary issues in the present week, reflecting the market’s lack of confidence in the current scenario.

This week volatility would continue to dominate the market, and investors and traders would do well to use it to their advantage. Use sharp dips to enter the market and sharp upswings to sell and book profits.

Invest in the same stocks that you liked earlier; it is not necessary to pick new stocks. A known stock at cheaper valuations is far better than an unknown one where the valuations are still to be tested by an investor. Invest on sharp dips and do cherry picking with time on the investor’s side.

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