Budget 2022: With FIIs as net-sellers, market could remain volatile

Markets continued to remain volatile and unsure of which direction they should move. Post the FED meeting what did become clear was the fact that interest rates would rise in March and that the rate of increase would be more than the customary 25 basis points. Various brokerage houses internationally have anticipated that there could be as many as 4-5 rate hikes in 2022. How many will finally happen is anybody's guess but the fact that easy money will become dearer is a certainty. This is probably why the FII's have been big sellers in Indian markets and are adjusting their portfolio ahead of the new stance that would happen post the tightening.

Markets in India rose on one day and fell on three days in a four-day trading week. BSESENSEX lost 1,836.95 points or 3.11 per cent to close at 57,200.23 points while NIFTY lost 515.20 points or 2.92 per cent to close at 17,101.95 points. The broader indices saw BSE100, BSE200 and BSE500 lose 2.90 per cent, 2.93 per cent and 2.99 per cent respectively. BSEMIDCAP was down 3.07 per cent while BSESMALLCAP lost 3.43 per cent.

Dow Jones was very volatile and ended the week with gains of 459.97 points or 1.34 per cent to close at 34,725.47 points. Dow gained on two days, lost on two and was flat on the fifth day. However intraday volatility was at its peak and one saw really sharp moves throughout the day. The Indian Rupee lost 66 paisa or 0.89 per cent to close at Rs 75.04 to the US Dollar.

January futures expired with minor losses of 93.80 points or 0.55 per cent at 17,110.15 points. What is worth noting is the fact that during the month, the high registered on NIFTY was 18,350 points. At this level, the series would have been higher by 1,240 points against a loss of 93.80 points that the series ended at.

The week ahead sees the Union Budget being presented on Tuesday the 1st of February. While there are not too many expectations from the budget as of now, one can only speculate on the possible outcome. The government has its options cut out considering the fact that it has been covid and its after effects for almost 22 months now. Economy has been showing signs of being resilient and economic indicators point to the fact that there is a sharp bounce back in the same. What new impetus can be given at this point to kickstart the economy further will need wild imagination as well. On the positive side, one can be sure that with the mega IPO from LIC expected shortly, may curb the government from doing any tinkering which may affect stock markets negatively. At the same time elections to five states would be held in the next 10-36 days and this would ensure that any measures which would hurt the masses would not happen.

One may expect measures to increase government spending on infrastructure. In line with this the proposal which has been discussed for sometime now where there may be incentives for investing in approved government schemes involved in infrastructure may finally see light this year.

In primary market news, the IPO from Adani Wilmar Limited to raise Rs 3,600 crs has completed two of the three days for which the IPO is open. The issue price band is Rs 218-230 and is subscribed 1.19 times so far. The anchor portion received a very strong subscription from the Government of Singapore who subscribed 47.88 per cent of the anchor book. This subscription would be on the back of Wilmar Limited which is a 50:50 JV partner in the company and is a Singaporean company.

The company Adani Wilmar Limited is into the business of edible oils, packaged foods company, stearic acid, glycerine and the largest exporter of castor oil. The company processes edible oil from crude palm oil as well as oil seeds across its multiple refineries spread across the country. The company sells branded packaged foods and also ready to cook foods through its flagship brand Fortune. It also has a setup in Bangladesh where it is trying to replicate the Indian model as the country Bangladesh is a model of West Bengal, in terms of market, likes and dislikes and also opportunities.

Coming to the revenues, the company reported revenues of Rs 37,100 crore for the year ended March 2021, and an EBITDA of Rs 1,400 crore. Over the years the company has focused on converting itself into a Food FMCG company with focus on almost everything that is required in the kitchen. Two items it does not include are dairy products and sugar. Its revenue breakup across the three verticals is Rs 305 billion in edible oils, 19 billion in food and FMCG and 47 billion in Industry essentials.

The company reported an EPS of Rs 6.37 for the year ended March 2021. Based on this EPS, the PE multiple of the company at the price band of Rs 218-230, is 34.22-36.11. The company has compared itself with the FMCG companies which are not strictly comparable. This is into the commodities business and this is affected by inflation and enjoys very poor margins unless you reach a significant scale. Considering the lackluster response that the issue has received so far, the issue may be given a skip and looked at on listing instead.

The offer for sale from AGS Transact Limited which had tapped the capital markets with its issue would be listed on Monday the 31st of January. The price band was Rs 166-175, and the issue was subscribed 7.99 times.

Of the 17 recently listed shares since 18th November, 5 shares are trading below their issue price. Last week in particular, 16 of the 17 companies lost ground. The shares on the receiving side were those from the tech platforms and they lost considerable ground with many of them making new 52-week lows. SEBI is insisting with many of these loss-making tech companies who have filed their DRHP's and are looking to tap the markets with the RHP, to submit latest accounts updated as of 31st December. This has happened after the way many of these companies have fared on the markets and the way they raised money for acquisitions which has since been revised.

On the Covid-19 front, India has vaccinated 165.73 crore people so far of which 94.07 crore are with the first vaccination while 70.54 crore people have been fully vaccinated.

Coming to the markets in the coming week, it's a new series but has the budget to be presented on Tuesday. Global markets have just witnessed an extreme bout of enhanced volatility and still seem to be reeling under it. Expect the same to continue. In India, FII's have been continuously selling and adding to the pressure that markets are facing. With the budget due on Tuesday, markets would remain volatile without a doubt. On the positive side, if nothing majorly negative for the markets does not happen, we have a possibility for a small rise happening. Traders are currently scared of having overnight positions and prefer squaring off at the end of day. In such a scenario, expect markets to have a clearer path and direction when trading begins on Wednesday in the Indian markets.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)

--IANS

arun/dpb