Take a rain check on trading because there will be irrational moves ahead
Union Finance Minister Arun Jaitley comes out of Parliament House during Budget Session. Pic/PTI
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It was a terrible week for global markets and India as well. The BSESENSEX lost 579.46 points or 1.78 per cent to close at 32,596.54 points. NIFTY lost 197.10 points or 1.97 per cent to close at 9,998.05 points. The broader markets saw the BSE100, BSE200 and BSE500 lose 2.04 per cent, 2.21 per cent and 2.44 per cent respectively. BSEMIDCAP lost 3.355 and BSESMALLCAP was down 4.61 per cent.
Dow Jones was at the centre of the mauling which global markets got after Donald Trump initiated trade wars primarily targeted at China. The Indian rupee lost 8 paisa or 0.12 per cent to close at Rs 65.01 to the US dollar.
Coming back
The BSESENSEX is back to the levels we saw in December 2017 while Dow Jones goes back to November 2017. It is also interesting to note that the highs in the current rally were made on 29th of January 2018 in India as well as the USA. Budget and the Long-Term Capital Gains Tax introduction was much later on 1st February.
Another way of looking at it is the fact that BSESENSEX and NIFTY have lost 11.80 per cent and 11.74 per cent from their highs of 29th January while Dow has lost 13.10 per cent from the same date. Very clearly while we were at the centre of capital gains and lost, Dow was at the centre of other issues and lost more.
Under pressure
The US FED has raised interest rates by 25 basis points and indicated that 3 to 4 more could be on their way in the remaining nine months of the calendar year 2018. While the secondary market was under pressure, there was a flood of issues in the primary market. Six issues were there for subscription last week and also one listing.
The first issue was from Bandhan Bank Limited which was subscribed 14.63 times. QIB portion 38.67 times, HNI 13.89 times and Retail 1.20 times. The next was defence PSU HAL or Hindustan Aeronautics Limited where FII's were no allowed to bid. The issue was subscribed 0.99 times with QIB portion subscribed 1.73 times. All other segments were undersubscribed with HNI at 0.03 times, Retail 0.39 times and Employee 0.21 times.
Many times
The next issue was from auto component makes Sandhar Technologies Limited which was subscribed 6.19 times. QIB portion was subscribed 14.49 times, HNI 6.39 times and Retail 1.42 times. Special alloy maker from the PSU, Mishra Dhatu Nigam Limited was subscribed 1.21 times with QIB portion subscribed 1.96 times. The others were undersubscribed at HNI 0.12 times, Retail 0.72 times and Employee 0.26 times.
The final issue was from real estate player Karda Constructions from Nasik in Maharashtra. The issue was subscribed 2.54 times with QIB subscribed 1.55 times, HNI portion subscribed 3.44 times and Retail 2.01 times.
Looking ahead
The issue from Bharat Dynamics Limited listed last Friday. Shares were issued at Rs 428 with a discount of Rs 10 to retail investors and eligible employees. After a discovered price of Rs 360 and Rs 370 on the BSE and NSE respectively, the share closed at Rs 390.70 and Rs 389.80, closing with losses of 8.71 per cent and 8.93 per cent respectively. While the secondary market took a beating on Friday, the poor volumes indicate that there could be further weakness ahead. The issue from ICICI Securities is currently on and closes on Monday, March 26.
March madness
The last issue in this March madness opens on Monday, March 26 and closes on Wednesday, March 28. The offer for sale from Lemon Tree Hotels Limited is for 9,45,00,053 shares in a price band of Rs 54 to Rs 56. The company has made a net profit after tax on a consolidated basis only in the nine-month period ended December 2017. The price earnings multiple based on standalone results for year ended March 2017 is between 771.43 to 800 times its earnings per share of Rs 0.07. If one were to consider the book value or NAV it is at Rs 15.66 for December 2017 which values the company at 3.57 times. Indian Hotels is available at a price to book of 3.70 times and is a company having a track record of god alone knows how many decades. Clearly, the companies are not comparable and valuations such that there is nothing left on the table for the investor.
Baffling move
A strange development has happened with a SME which was IPO bound, Deccan Healthcare. It had a press conference on Friday March 23 for the issue which was to open on Wednesday, March 28 and that same evening it withdrew the RHP. One has to wonder whether it has anything to do with the poor response of issues on listing these days.
March Futures expire on March 28. The current value of NIFTY futures is lower by 384.65 points or 3.85 per cent, giving bears the upper hand. With three days to expiry and year end, it is difficult to imagine that bulls could stage a turnaround. Markets have a trading holiday on Thursday and Friday in the coming week. Use sharp dips to do selective purchase and refrain from trading as markets would be super volatile and irrational as well.
Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd.
Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is for educational and information purposes only.
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