Grim and bear it

It has been a weak week with redemption nowhere in sight

The week gone by was one of weakness and culminated in a crash on Friday when it lost almost 500 points. The BSE SENSEX ended with a weekly loss of 817.28 points or 4.15 per cent, to close at 19,691.81 points. The NSE NIFTY lost 229.90 points for the week or 3.89 per cent to close at 5,904.60 points. The broader indices like the BSE100, BSE200 and BSE500 lost similarly 3.99 per cent, 4.01 per cent and 3.98 per cent. The BSE SMALLCAP lost 3.28 per cent and the biggest loser was the BSE MIDCAP, which lost 4.44 per cent.

Domestic
Friday saw Foreign Institutional Investors selling over Rs 1000 crores worth while domestic institutions bought over Rs 1100 crores worth. Clearly had domestic institutions not bought on Friday the fall could have become more devastating. The only reason that one could give for the fall was the rising inflation and the expectation that within the next couple of weeks RBI would raise interest rates by a minimum of 25 basis points if not 50 basis points.

Critically...
Coming to the IPOs during 2010, of the 70 IPOs including follow on offers, five IPOs gained more than 100 per cent, seven IPOs gained between 25 per cent and 75 per cent while 15 IPOs gained less than 25 per cent. 21 of the IPOs lost less than 25 per cent while the remaining 22 IPOs lost more than 25 per cent but less than 75 per cent. What is disturbing is the fact that of the 70 issues only 27 were positive while 43 were negative, implying a ratio of 40 per cent positive and 60 per cent negative. Even more dangerous is the fact that nine issues or almost 13 per cent lost more than 50 per cent of the IPO issue price. With a huge pipeline of issues waiting to tap the capital markets, it is high time that promoters and merchant bankers look at issue pricing more critically and ensure that the pricing is adequate if issues have to succeed.

Caution
In the one IPO, which was open for subscription, C Mahendra Exports was subscribed about 2.78 times and the retail subscription in the same was 60 per cent. There is one issue opening today, Monday January 10 and closing on Wednesday, January 12. The issue Midvalley Entertainment Limited is raising Rs 60 crores in a price band of Rs 64-70. The risk factors of the issue are enough to scare the wits out of an investor. The company has filed its DRHP (Draft Red Herring Prospectus) on four previous occasions unsuccessfully and had to withdraw before going public. It has not paid income tax dues, which are not disputed from assessment year 2001-2002. It has defaulted in payment to City Union Bank and had entered into a one-time settlement with them. The issue has been given a grade of 1 by Brickworth Ratings, which indicates poor fundamentals. The promoters holding would reduce to 34 per cent post the issue. The company has proposed to the Income tax department that they would pay the outstanding dues in installments and have paid Rs 14 lakh in June 2010 towards the same. There is every possibility that the amount being raised through this issue may get appropriated towards tax dues and make the life of investors in this company even more difficult. All I could advice investors is to stay away from this entertainment company.

Vulnerable
The markets are looking vulnerable and the mood is bearish. Normally markets at such times rebound, but this time that may not happen. The BSE SENSEX has support at 19,477, then at 19,325 and then at 19,074 points. It has its last support at the low made onu00a0 November 26 at 18,954 and assuming this level also breaks we could see a blood bath at the bourses. This looks unlikely this week simply because the level of 18,954 points is 737 points or 3.74 per cent away. Nothing has happened globally that could lead to such a fall this week as well. Coming to the resistance, the immediate level is 19,985, followed by 20,058 and then at 20,241 points. There is strong resistance at 20,362 and finally at 20,639 points.

Careful
The NSE NIFTY has support at 5,841 points, then at 5,798 points, and then at 5.675 points, which is marginally below the November 26, low of 5,690 points. It has final support at 5,625 points and this does not look likely to break this week. There is resistance at 6,009 points, then at 6,095 and finally at 6,176 points. Markets are likely to be under pressure during the week and at best may try to regain some of the losses of last week. Trade carefully in the week ahead.u00a0u00a0

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website https://ak57.in
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