News and cues saturate week

An eventful past few days lead up to the budget

It was a very long week at the markets replete with news. In fact, there was so much news, that it seemed the week would never end. Markets began the week on a positive note and gained on one more day while they lost on three days. BSESENSEX lost 361.07 points or 0.99 per cent to close at 36,025.54 points. NIFTY lost 126.45 points or 1.16 per cent to close at 10,780.50 points. The broader indices saw BSE100, BSE200 and BSE500 lose 1.30 per cent, 1.41 per cent and 1.57 per cent respectively. BSEMIDCAP lost 2.28 per cent while BSESMALLCAP lost 3.48 per cent.

Top crop
The top sectoral gainer was BSEOIL&GAS up 3.70 per cent followed by BSEHEALTH CARE 1.06 per cent and BSEIT 0.77 per cent. The top loser was BSEAUTO down 6.49 per cent followed by BSEPOWER 3.64 per cent and BSEMETAL 3.11 per cent. In individual stocks the top gainer was Yes Bank 10.79 per cent, followed by Sun Pharma 8.05 per cent and Reliance Industries 5.33 per cent. The top loser was Zee Enterprises down 27.45 per cent followed by Maruti Suzuki 11.38 per cent and Hero Moto 7.71 per cent.
The Indian Rupee remained unchanged at Rs 71.18 to the US Dollar. Dow Jones had a volatile week but managed to eke out gains of 30.85 points or 0.12 per cent to close at 24,737.20 points.

Share fare
The week had its share of news flow. The first was the clarification by the management of Sun Pharma on some issues that have been raised as a result of a complaint from the whistle blower. Sun Pharma shares were up post the same and gained Rs 31.45 or 8.05 per cent to close at Rs 422.20. Yes Bank announced its third quarter results and the new MD and CEO in Ravneet Gill, ex CEO Deutsche Bank India operations. The share was up Rs 21.40 or 10.79 per cent at Rs 219.65. During trading on Friday it had touched a high of Rs 236.30 on short covering. Volume on Friday was huge, and one saw people covering their positions. The share saw profit taking at higher levels. Maruti Suzuki posted a poor set of numbers on account of lower sales and the share was hammered. It lost Rs 837 or 11.38 per cent to close at Rs 6,516, its lowest value in about 20 months. The impact of this performance would also be felt on other auto companies and auto ancillaries.

News views
Subhash Chandra sent an open letter to stake holders at the end of the day (Friday) after the parent company and group company share prices were hammered and flagship company Zee Enterprises lost Rs 120.80 or 27.45 per cent to close at Rs 319.35. Intra-day they had touched Rs 288.95. The letter asks stakeholders to be patient till the stake sale happens and Subash Chandra admitted to having made wrong decisions in the course of the business particularly in respect of the D2H acquisition and some other businesses. CBI has filed FIRs against ICICI Bank Chanda Kochhar, her husband Deepak Kochhar and V N Dhoot of Videocon.

Issue eye
After a hiatus of almost five months we have a primary issue on the main board. (There was a small issue of Rs 23 crore in the current week from Xelpmoc which was subscribed.) Chalet Hotels Limited is tapping the markets with its fresh issue to raise Rs 950 crore and an offer for sale of 2,46,85,000 shares in a price band of Rs 275-280. The issue opens on Tuesday, January 29 and closes on Thursday, January 31. While the bankers to the issue believe that this issue would revive the capital markets, the pricing of the same does not make one believe it would.

The EPS of the company for the year ended March 2018 is Rs 1.35, which makes the price earning multiple between 151.10-155.85 times. While PE may not be the best method, if one were to look at NAV, the same is Rs 27.32 as of September 30 which means the issue is being offered at just over 10 times price to book. Yet another method is EV/EBITDA where the same is just about 20 times. The hospitality industry has not made money for investors in a decade. If a company from the same space must revive the primary market, the valuation should be attractive and not more expensive than the listed players. I believe one should look at the issue after price has been discovered post listing.

The budge
The week has January futures expiring on Thursday, January 31 followed by the budget, the next day. The current level of the cash value of Nifty at 10,780.50 points is as flat as a doormat as the same is up 0.70 points or 0.01 per cent for the series.

Budget would be presented by the acting Finance Minister Piyush Goyal in the absence of Arun Jaitley who is unwell. This budget would be followed by a no holds barred general election in April and May. Expect the unexpected in the budget as the ruling party opens the purse strings to woo back voters they have lost in the last year or so. A farm scheme on the lines prevailing in Telangana and announced recently in Orissa, where based on the land holding, there is a direct transfer before the sowing season into the farmers account is in the offing. An increase in tax-free limit from 2.5 lakh to 3.5 lakh if not 5 lakh. Also, benefits for the MSME and SME segments in ease of doing business.

These measures are for the common man and no political party would be able to oppose the same. The proposals would be ratified by the government of the day in May 2019, but they will be proposed now. It would be the same as the reservations bill which was proposed and passed in under 48 hours. With so much on the plate, brace yourself for a super volatile expiry and budget.

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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