Budget to provide impetus for economy, markets

Markets fell for the first three days of the week and then recovered ground. The recovery, though, was not enough to end markets in positive territory, but the salient feature was that the midcap and smallcap indices had a very strong showing and closed the week with gains.

The BSE SENSEX lost 332.18 points or 0.79 percent to close at 41,613.19 points. NIFTY lost 104.10 points or 0.84 percent to close at 12,248.25 points. The broader indices saw the BSE100, BSE200 and BSE500 lose 0.59 percent, 0.84 percent and 0.31 percent, respectively. The BSE MIDCAP gained 0.72 percent while the BSE SMALLCAP was up 0.93 percent. The breadth in the market is certainly improving and this will hold the market in good stead going forward.

The Indian rupee lost 24 paisa or 0.34 percent, to close at Rs 71.32 to the US dollar. Dow Jones was down 358.37 points or 1.22 percent, closing at 28,989.73 points.

Results are a mixed bag from the heavyweight stocks. HDFC Bank saw its loan book under pressure with provisions increasing, while ICICI Bank produced its best ever results with a strong uptick in core operations. The performance improved further with the resolution of Essar Steel, and it saw a sharp drop in provisions and also an increase in recoveries. The bank reported a consolidated net profit of Rs 4,670 crore in the third quarter versus 1.874 crore in the corresponding quarter last year.

SEBI has filed a special leave petition (SLP) in the Supreme Court asking that IHH, the company that had acquired Fortis Healthcare, be allowed to complete the open offer as the same was done before the Supreme Court gave instructions to freeze the shares. This would be positive, as the matter has been hanging fire now for over 13 months.

The week ahead sees ITI Ltd (Indian Telephone Industries) a public sector undertaking (PSU) coming out with its follow-on offer for 18.18 crore shares in a price band of Rs 72-77. This was India's first PSU set up way back in 1948. After being a great performer for about 45 years it fell on bad times and had become a sick company. The government revived the company and it is now not only back in the black but has also reported a positive net worth. The new management is aggressive in their strategy and is now competing with its private sector peers.

The issue price earnings multiple is a steep 74.23-79.38 times based on the financial year ended March 2019. The performance for the current year has changed significantly and the future looks better considering the order book and marked improvement in performance.

The order book is about Rs 11,000 crore and does not include the ASCON Phase IV' defence order, which the company would be getting shortly. This order includes roughly 70 percent of executing the creation of an optical fibre network and the remaining as AMC (annual maintenance contract) over a period of eight years.

Margins for the company have improved significantly and there has been cost-cutting and efficiencies all round. To derive benefit from the huge land bank the company has, it is looking at creating manufacturing hubs which would be leased out under the Make in India initiative. With the company having turned the corner, its interest outgo would reduce and it would be possible for the company to earn decent margins on all its business verticals.

For the record, the closing price of ITI on Friday was Rs 91.05, a loss of Rs 12.10 or 11.73 percent. Considering the size of the issue and the present floating stock, it would be fair to assume that the market price would fall further and adjust closer to the issue price band. It would still be higher than the top end of the price band offering listing gains to successful applicants.

The week ahead sees January futures expire on Thursday, January 30. The current level of the NIFTY at 12,248.25 points is higher by 121.70 points, or 1.00 percent, over the previous expiry. With the budget around the corner and no major build-up in positions so far, one should expect the bulls to take the series.

The union budget would be announced on Saturday, February 1, and markets would trade normally. This is after a very long time that with the budget a mere five trading sessions away, there is no expectation or build-up, or a pre-budget rally that has happened. This means that if the budget has positives for the market, there can be an upside, while if there are no positives, things would remain as they are.

With the economy under severe stress, it would be expected that there would be measures to kick start announced in the budget. Further as the stock market is a barometer for the state of the economy, something to brighten the spirits would certainly happen.

Trade with a positive bias as the budget is likely to help revive market sentiments and the economy.