Market recovery last week looks weak and fragile, be cautious

Markets in the week gone by continued to remain volatile and choppy. Though they managed some gains on a net basis the fact remained that they were under pressure and one saw them swinging in either direction. BSESENSEX gained 589.31 points or 1.03 per cent to close at 57,696.46 points while NIFTY gained 170.25 points or 1.00 per cent to close at 17,196.70 points. This should also be viewed in perspective that the losses in the previous week were as much as 4.24 per cent and 4.16 per cent.

The broader markets saw BSE100, BSE200 and BSE500 gain 0.93 per cent, 0.97 per cent and 1.01 per cent respectively. BSEMIDCAP was up 1.35 per cent while BSESMALLCAP was up 1.25 per cent. Markets gained on three of the five days where Tuesday and Wednesday saw sharp gains and Friday was a wild swing day with equally sharp losses.

The Indian Rupee lost 29 paise or 0.39 per cent to close at Rs 75.16 to the US Dollar. Dow Jones continued to remain under pressure and lost 319.26 points or 0.91 per cent to close at 34,580.08 points.

In economic news, the GST collections for November were at Rs 1.31 lakh crore which were the second highest ever after the collection of April 2021 which related to the year end figures. This included festival sales and also reflects the buoyancy in the economy. The number was higher than the previous month by 25 per cent and by 27 per cent compared to the same month a year ago.

Coupled with the fact that the GDP number for the quarter July to September 2021 grew by a much better and higher 8.4 per cent coupled by the GST figure indicates that the economy is certainly back on track and the negative effects of Covid-19 have been arrested and reversed.

RBI would be meeting for the bi-monthly MPC committee meeting between the 6th and 8th of December and it is widely expected that rates would be kept unchanged. They may however narrow the difference between repo and reverse repo rate with an eye to keep a tight lease on inflation and keep the same under check. The press conference would be held on Wednesday to announce the policy.

In primary market news, we saw the listing of Go Colour (India) Fashion Limited which was a blockbuster one. Shares which were allotted at Rs 690, ended day one at Rs 1,252.60, a gain of Rs 562.60 or 81.54 per cent. They lost some ground during the week and closed at Rs 1,248.45, up 80.93 per cent.

Two issues closed for subscription during the week, with Star Health and Allied Insurance Company Limited, struggling to get subscribed. The company which had launched its fresh issue for Rs 2,000 crore and an offer for sale of 5,83,24,225 shares in a price band of Rs 870-900, saw the issue get a tepid response and remain undersubscribed at just 0.79 per cent. It then reduced the offer for sale size and on basis of the QIB subscription, managed to get the issue technically subscribed.

Readers would recall that last week, when I had reviewed the issue, I had mentioned that “The issue is expensive and investors should spend the Rs 14,400 that they would have applied in the share to buy health insurance for Covid-19 and the other diseases. This would be far from rewarding as health would be protected, and health is wealth.” Readers who would have followed my advice would be happy as the share is already trading at a discount in the grey market and may fall further on listing.

The second issue to get closed for subscription during the week was Tega Limited which received overwhelming support from QIB’s and became the highest subscribed QIB issue in over a decade. The issue was subscribed 215.45 times by QIB’s, 666.19 times by HNI’s and 29.44 times by Retail and an overall 219.03 times. There were 34.84 lakh applications.

One issue had opened for subscription during the week from Anand Rathi Wealth Limited which had tapped the capital markets with its offer for sale of 1.2 crore shares in a price band of Rs 530-550. The issue opened on Thursday the 2nd of December and would close on Monday the 6th of December 2021. The issue is already subscribed 3 times with HNI portion subscribed 3.04 times and Retail portion 4.74 times. The company is into the business of wealth management and over the last three years has been the third highest gross commission earner from sale of mutual fund distribution. The company has an AUM (assets under management) of Rs 30,209 as on March 31, 2021.

The company’s performance has improved significantly in the first five months of the current year ended August 21 and the EPS for the five-month period is Rs 12.25. If one were to annualise this EPS the same would be Rs 29.4 for the full year ending March 2022. Based on this projected EPS, the PE band for the company would be 18.02-18.70. This would make the price multiple attractive but offer scope for appreciation post listing.

There is another issue which would open for subscription on Tuesday the 7th of December and close on Thursday the 9th of December. The issue from Rategain Travel Technologies Limited is tapping the capital markets with its fresh issue for Rs 350 crore and an offer for sale of 2.26 crore shares in a price band of Rs 405-425. The company is into the business of ‘SAAS’ (Software as a service) and caters to the hospitality and travel industry.

The company reported revenues of Rs 264 crore for the year ended March 2021 and a PAT before goodwill impairment of Rs 7.5 crore. The number for five months ended August 2021 was Revenues of Rs 131.22 and a PAT of Rs 4.57 crore before impairment. Post impairment the numbers change to negative Rs 28.57 crore for FY21 and negative Rs 8.33 crore for five months ended August 21. This is on account of the acquisition done by the company during the last two years and the impairment of goodwill on the same. It’s a promising business where revenues flow each time the platform powered by the company sees a booking. Such businesses have a waiting period and need time to mature.

The new variant ‘Omicron’ on the Covid-19 front is seeing people gasp, panic and get worried about what next. While Covid-19 cases have not shot up dramatically in any manner whatsoever, panic is at heightened levels. While the need to maintain social distancing is of paramount importance, the need not to panic is equally important.

Social media is of great importance and in this world where we have so many IPOs tapping the markets, it becomes very important to monitor social media and what goes out on the same regarding new issues. While freedom of speech and expression is a fundamental right, one needs to be careful before making a 180 degree turn on a view about an IPO. It’s becoming a joke where you see many social media activists or influencers change their view in a couple of days even while the issue is on and the change in view is 180 degrees or maybe even more. They very conveniently forget to mention in the new message, why the view has changed so dramatically, or that they had a different view earlier. It’s time for some control, moderation and also a wakeup call for the entire ecosystem as investors money is at stake. No aspersions are being cast but many underhand activities have surfaced which are harmful for the environment.

Coming to the markets ahead, the volatility and choppiness will continue. Previous lows made on Monday the 29th of November will be major and very important support for the market. If these levels for any reason do get violated on the downside for any reason, we could see some more pain in the markets including a blood bath. On the positive side if these levels hold, there is hope for some continued recovery which would be slow and steady.

The strategy would continue to be to sell on rallies and buy large cap stocks on sharp declines. Continue to add cash to your war chest for buying opportunities.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)




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