The massive liquidity in the system is the only reason driving the markets higher. But at the same time, liquidity getting sucked out through IPOs is very small compared with the proportion of helicopter money coming in. The government is all set to aggressively offload its shareholdings through primary and secondary market sales in companies, in which they hold more than 51%.
SAIL’s OFS was a real surprise after its surreal 3 times returns in the nine months and the exchequer jumped on to the opportunity to trim its stake amid rising demand. The market should be well prepared, as other listed government companies might follow on SAIL’s footsteps. Hence going forward, PSU stocks might witness selling pressure, as and when the supply deepens and that will keep a tight rein on the prices.
The IPOs of LIC and other big-ticket players are yet to materialize. However, it seems absolutely clear that the government is willing to sell on every rise. Meanwhile, a plethora of companies are expected to hit the bourses in the first quarter of the year, beginning with IRFC and Indigo Paints.
This may create conditions for more IPOs to come into the market and that will eventually stop the music of liquidity. However, it would be pertinent to understand that the rate at which developed economies are pursuing quantitative easing is quite substantial compared with the rate at which IPOs are sucking out money. Therefore, the liquidity will remain in surplus in the system for some more time. Nonetheless, channeling financial markets’ liquidity into the real economy through IPOs and FPOs has begun. Investors are advised to subscribe to these IPOs in this environment of liquidity gush and book profits as and when the opportunity arises.
A trader mentality would work better now than holding on to these stocks for the long term.
Event of the Week
The four IT biggies delivered blockbuster earnings for the December quarter despite the furloughs usually seen in Q3. Infosys outperformed both TCS and Wipro on revenue growth. Sequential revenue growth in constant currency terms for Infosys was 6.6% against TCS’ 4.1%, Wipro’s 3.4% and HCL Tech’s 3.6%. Though prices of the IT stocks appear expensive currently, but with TCS and Infosys gaining market shares and the managements giving out upbeat commentaries about a multi-year technology upgrade cycle, the earnings momentum might support the stock prices for a reasonable period of time. Investors may look to stay invested in the IT stocks for the long haul.
Technical Outlook
Nifty50 closed the week on a positive note after making a new lifetime high. However, the index moved in a narrow trading range and formed a bearish Shooting Star candlestick pattern on the weekly chart. The market is overstretched on the upside. This can cause a short-term dip or weakness in the near term. In fact, S&P500 — which has been dictating the trend for the global equity indices — is now trading negative for the week, and other emerging markets such as Taiwan (TAIEX) and South Korea (KOSPI) are trading with a sideways to mild negative bias.
A break below the 14,430 level can trigger a bout of profit booking in Nifty. Immediate support and resistance levels for the short term are now placed at 14,430 and 14,640 levels, respectively, and a break on either side will lead to a directional move in the short term.
Expectations for the Week
Going ahead, the market is expected to witness unusual hype and hysteria on hopes and expectations of the Union Budget, which will drive volatility even higher. At an aggregate level, largecap players might not see substantial moves, but there could be a lot of buzz in smallcaps and midcaps. Market participants should consider this as a trading opportunity, and not invest for the long term at current price points. Medium-term investment opportunities are still available in pockets like metals, commodities and cyclicals, although they have turned risky.
Nifty50 closed the week at 14,433, up 0.6%.
