What will the FED do tonight ?

Market Update - Wednesday, 10 Dec

It was another day where markets were completely volatile, with the first half going up and the second half coming down.

This volatility occurred even as the market is expecting a rate cut by the Fed tonight. It seems all that is already baked in, and the market is certainly not in a good mood going forward.

• Looking at the market chart, this is the third day running where Nifty also has not been able to hold on. We are decisively in a short-term downtrend for sure, although how far down is not known.

• We've closed this gap that was available here, and the next pivot perhaps is somewhere near 25,300. So that's sort of the natural next stop for the markets.

• Nifty Jr. was down 0.32% today. The dead cat bounce that started yesterday morning did go high, but today we failed to capitalize on that bounce and go further.

• This is where the damage was more pronounced: mid caps have closed at a new few-months low. Yesterday's gain from open to close was completely smashed down, with a 0.93% drop in mid caps and a 0.7% drop in small caps, which was also pretty damaging.

• Gold is also slipping a bit, with the rate at 12,854 per gram. However, silver is climbing new highs, with the price for silver in rupee terms at 186,000.

• So, silver is actually leading gold, and that happens in a precious metals long-term rally.

Other Market Triggers

• In the Nifty Heatmap, there were very few greens. Reliance was holding on at 0.49%. Tata Steel, Hindalco, Sun Pharma, ITC, and Bajaj Auto were some of the names holding out.

• TVS Motors and HDFC Life also showed some gains. There were losses in Eternal, Infosys, ICICI Bank, HDFC Bank, Bajaj Finance, Adani Enterprise, UltraTech Cement, and others.

• In the Nifty Next 50 heatmap, we had losses in Bank of Baroda, IRFC, Swiggy, D-Mart, Naukri, Bosch, and several others.

• Some gains were seen in commodity stocks like Hindustan Zinc and Vedanta, as well as in Hyundai and Torrent Pharma, and Tata Motors along with Adani Ports.

• In the Mover of the Day segment, we had Wellspun Living go up 6.8%. Any stock that is showing relative strength versus the weakness in the market is worth keeping on your watch list if you are doing discretionary trading or investing.

U.S. Market Update

• In the previous session on the US markets, we had a mixed bag. Dow Jones was down 0.4%, while Russell and NASDAQ were up 0.2% and 0.1%, respectively. So, it was a mixed-bag kind of situation there in terms of stocks.

• There were some big losses in JP Morgan at 4.6%, Boeing at 2.8%, and Verizon, Amgen, and Merck were also down. Some of these stocks could be part of the Weekend Investing US stock strategy, but these are not recommendations; that's the disclaimer.

What to watch next ?

• The expectation was that an interim bottom would get made today ahead of the Fed meet, but the jury is still out. It doesn't seem like the market is willing to show any strength in its move right now.

• Perhaps things can change overnight; that is always a possibility, but right now it looks a bit bleak. The chances of a Fed rate cut are very, very high, of course.

• The most important thing that will be observed post the Fed meet would be the narrative—what they say about the next cut coming through.

• If that narrative is a bit dovish, then perhaps all markets globally will have a sigh of relief. So, over to the Fed for this decision tonight.

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What To Read This Week ?

🚀 IPO Buzz: A Closer Look at Pre- and Post-Listing Sales Growth

📊 The Striking Data Point: Pre vs. Post-IPO Sales Growth

A recent data point sourced from ET Prime (via the ET Intelligence database) highlights a concerning trend among several recently listed companies: a dramatic slump in quarterly sales growth immediately following their Initial Public Offerings (IPOs).

The data compares the quarterly sales growth rate before and after the companies' listing:

The observation is stark: double-digit positive growth rates suddenly converted into negative or near-zero growth figures right after listing.

🤔 The Question of 'Evergreening'

The data raises a critical, albeit cautionary, question: Is this a genuine, sharp business decline, or is it a sign of "evergreening" of accounts?

• The 'Evergreening' Hypothesis: The practice, often employed to make a company look more attractive before an IPO, involves recognizing or booking sales that were originally due in the subsequent quarters prior to the listing.

• The Resulting Impact: When these future sales are prematurely booked, the quarter immediately following the IPO inevitably suffers from a deficit, leading to the observed sudden drop or negative growth.

While it is impossible to conclusively accuse these four specific companies without further analysis, the data certainly highlights a pattern that makes the dramatic drop in growth "difficult to comprehend."

🎲 The IPO Market: A 'Flipping Game'

The current nature of the IPO market is another significant theme.

• Trader Domination: The market is heavily driven by short-term traders whose primary goal is playing a "flipping game." They apply for the IPO, aim for an allotment, and exit on the first day of listing (or via the Grey Market) to secure quick gains of $10\%, 20\%, or even 50\%$.

• Impact on Long-Term Investors:

  • Allotment Difficulty: Long-term investors often struggle to secure an allotment due to the massive rush from traders.

  • Unstable Post-Listing Prices: When they try to buy post-listing, the trades are often volatile and ill-informed.

💡 Key Learning: The Best Strategy for Long-Term IPO Investing

"The best way to play the IPO is to let it list. Allow the short-term players and those under lock-in to exit. Let the stock stabilize for about six months. Only then should you look at the underlying trend and consider investing."

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