Taking the Twisted Way
As is often pointed out, growth isn’t always linear; it is two steps forward, one step back. This has been the story of the Indian markets for the last one week. While the markets gained almost 0.58 per cent from last Thursday’s closing to this Thursday closing, the journey has been not been linear. The market began its journey on a high note with market participants encouraged due to a pair of lucky breaks which came in the form of a circular released by SEBI and AstraZeneca announcing resumption of clinical trials of their proposed vaccine for corona virus after receiving approval from safety regulators.
SEBI’s circular contained guidelines for allocation of funds for multi-caps according to which a multi-cap fund has to invest at least 25 per cent of the fund’s corpus in large-caps, mid-caps and small-caps. Simply put, if a mutual fund has to invest Rs 100, Rs 25 would have to be deployed in largecaps and as per the new guidelines, a similar amount has to be invested in the mid-caps and small-caps while the balance of Rs 25 would be left to the discretion of the fund manager. This can be invested in any category or kept as cash.
This move by SEBI was carried out to make sure that the multi-cap schemes remain true to their tag as in recent times these funds have stayed in the shade of large-caps and in a sense they are not different from any large-cap scheme. However, soon after the circular, a clarification was released by SEBI stating that mutual funds have the choice to meet the conditions of the circular based on the preference of their unit holders. Else, they can switch to other schemes, merge their multi-cap schemes with their large-cap schemes or convert their multi-cap schemes to another category.
Multi-cap funds had exposure to large-caps and somewhat to the mid-caps as well, which is in compliance with the new regulations, but were underweight on the small-caps and so this segment of the market saw a jump of more than 5 per cent – this being the single best day gain registered by Nifty Small-Cap since May 2014. Meanwhile, Happiest Minds Technologies, which witnessed a huge demand for its IPO as it was oversubscribed 151 times, made a bumper debut as the stock got listed with a 111 per cent premium over its issue price of Rs 166.
With this, the stock surpassed listing gains delivered by bigwigs in recent times, including IRCTC and D Mart. It also proved that everything is fair in love, war and IPOs. With the secondary market being in full gush, the primary market has also been gaining attraction. This is quite evident from the fact that the recent IPO of Route Mobile’s IPO was subscribed 74.13 times and it received the best QIB interest in FY20 after SBI Cards, Rossari Biotech and Happiest Minds. Further, in the coming week two more IPOs will hit the market – Compute Age Management Services (CAMS) and Chemcon Specialty Chemicals. The size issue for CAMS is Rs 2,244.33 crore while that for Chemcon Specialty Chemicals is Rs 318 crore.
In the western world the most important economic event concluded on Wednesday. The FOMC meet and the US Federal kept interest rates steady near zero with an indication that it is likely to stay there until at least 2023 given the outlook for inflation and employment on account of the corona virus pandemic. It also indicated that risks to the economy remain without additional fiscal stimulus during the ongoing pandemic. Future rate hikes will hang on two key events: first, the labour market conditions return to maximum employment and secondly, inflation has risen to 2 per cent and is on track to moderately exceed 2 per cent for some time.
Coming back to the technical structure of the Nifty, it has a bullish structure. The bears have been failing to get confirmation of the bearish patterns several times. On the upside, confidence is lacking as volumes are not picking up and there are not many bullish range bars. Therefore, overall, the Nifty is expected to remain in a broad range of about 11,250-11,600, while stock-specific action would continue. Further, global cues would be important to monitor as the world markets are entering a period of high volatility, which may be aggravated by twists and turns of America’s presidential election.
