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Markets look overheated, take money off the table

by Arun Kejriwal (Market veteran investor and Opinion Maker)
Aug 01, 2022
Markets look overheated, take money off the table, Market, KonexioNetwork.com

The week began on a quiet note and markets lost ground on the first two trading days. They then rose quite sharply and gained on the remaining three. BSESENSEX gained 1,498.62 points or 2.67% to close at 57,570.25 points. NIFTY gained 438.80 points or 2.62% to close at 17,158.25 points. The broader indices saw BSE100, BSE200 and BSE500 gain 2.58%, 2.45% and 2.33% respectively. BSEMIDCAP was up 1.65% while BSESMALLCAP was up 1.06%. 

The Indian Rupee gained 61 paisa or 0.76% to close at Rs 79.25 to the US Dollar. Dow Jones had a strong week and gained 945.84 points or 2.97% to close at 32,845.13 points. Dow gained on four of the five trading sessions, losing on just one. 

July futures expired on a very strong note and closed at 16,929.60 points. It gained 1,149.35 points or 7.28% for the month. 

In economic news, the US FED raised interest rates by the expected 75 basis points and the rate band is now 2.25-2.50%. From the minutes of the FED meeting, what transpired is that the balance sheet reduction would accelerate from September 22. Inflation remains high and they hope to bring it down. 

Yes Bank has raised 1.1 billion US Dollars through a preferential share issue and warrants to be exercised into equity at a later date. The bank allotted shares at Rs 13.78 and warrants at Rs 14.82 to Carlyle and Advent International. 

Zee Entertainment and the proposed merger with Sony Pictures has received in-principal approval from the stock exchanges. They would now file the matter with NCLT. 

FPIs after being sellers for the last eight months turned buyers in July 2022 with net purchases of Rs 6,300 crs. This has helped in the markets being more buoyant as the continuous supply of paper has now abated. 

The bidding for spectrum is almost over except East UP which still continues. The government has received so far bids worth Rs 1,49,623 crs, far higher than the anticipated collection. East UP is a dominant territory in terms of traffic and revenues for all the three players, and therefore the bidding has got accentuated and extended. 

In the week ahead, RBI meets between the 3rd and 5th of August for its monetary policy meeting, where interest rates are expected to be raised. While one would have considered the raise to be lower than the last time round, the situation has been changed as this meeting has been preponed. It would be interesting to see how markets react to the change in interest rates and also the commentary from the press conference of the RBI Governor. 

The markets have made strong gains and are quite close to the intermediate tops made in April on 21st and 29th at 57,991 and 57,925 points. The values on NIFTY correspond to 17,414 and 17,377 points. These become substantially important levels for the coming week. If the rally has to sustain and continue, we need to not only cross these levels but also sustain the momentum after crossing them. The last two weeks have seen markets gaining 3,800 points or 7% on BSESENSEX and 1,100 points or 6.8% on NIFTY. This is a steep rise without doubt and markets need to consolidate at these elevated levels before the rise from hereon. Key supports exist at the top of the 13th June gap and then at the bottom of the gap. 

The rally over the last fortnight has been swift and ruthless on the bears. One needs to be sure that when the correction does happen, the fall would be equally swift and ruthless as well. The fact that Dow rose even though interest rates were hiked by 75 basis points for a second time in a row, has ensured the bears whether in India or the US have been forced to square up their positions and exit. The trading strategy would be to sell on any rallies and wait for re-entering the market at current levels. 

It would be of paramount importance to resist the temptation of adding to fresh positions in an overheated market, even though there could be some steam left. Only those who are bold and able to resist will survive. Trade cautiously.