Markets to consolidate amongst primary market focus

39

Markets were volatile to say the least in the week gone by and tested the patience and skill sets of traders and investors. While the week fortunately ended with gains it was not without hiccups and nervousness. The week ended with BSESENSEX gaining 1,090.21 points or 1.89 per cent to close at 58,786.67 points while NIFTY gained 314.60 points or 1.83 per cent to end at 17,511.30 points. Benchmark indices gained on two of the five sessions, were down on one and were virtually flat on the remaining two trading sessions. The broader markets saw BSE100, BSE200 and BSE500 gain 1.80 per cent, 1.89 per cent and 1.98 per cent respectively. BSEMIDCAP gained 2.08 per cent while BSESMALLCAP gained 2.95 per cent.

In what could be termed really interesting and almost a unique fact was that on the first three days of the week and two from the previous week, saw BSESENSEX move four digits or 1,000 points upwards or downwards and NIFTY on an average 300 points. In my over 30 plus years of tracking markets it does not come to mind that five consecutive days of trading from (2nd December to 8th December) saw these huge volatile swings. This clearly indicates the extent of nervousness and fickle mindedness of the market players.

The Indian Rupee was under pressure and lost 60 paise or 0.80 per cent to close at Rs 75.76 to the US Dollar. Dow Jones was in a strong up move and gained 1,390.91 points or 4.02 per cent to close at 35,970.99 points. The move is smart and strong and has the potential to take the Dow to a new high, crossing the previous all-time high of 36,566 points.

RBI in its bi-monthly MPC policy meet kept all key rates unchanged and voted 5-1 to continue the same. This announcement was in line with expectations. Going forward market experts believe that the policy of keeping rates at negative returns may stop and RBI may begin raising interest rates. We would have to wait for the next couple of months for the outcome of this when the committee meets again.

Primary markets continue their never-ending new issues tapping the markets. We saw in the previous week; two issues open and close for subscription while four issues would be tapping the markets with their issues in the coming week. Of these, two have opened and two would open. Further there are two more issues slated for next week where the price bands are yet to be announced. Also, there would be three IPO’s listing in the coming week while one IPO listed in the previous week.

The issue from Rategain Travel Technologies Limited was open from subscription from Tuesday the 7th of December to Thursday the 9th of December. The issue was subscribed 17.40 times with QIB portion subscribed 8.42 times, HNI portion 42.04 times and Retail portion was subscribed 8.06 times. There were 6.63 lakh applications.

The second issue was from Shriram Properties Limited which opened for subscription on Wednesday the 8th of December and closed on Friday the 10th of December. The price band was Rs 113-118. The issue was subscribed 4.81 times overall with the QIB portion subscribed 1.93 times, HNI portion subscribed 5.04 times, Retail portion subscribed 13.27 times and Employee portion subscribed 1.31 times. There were 4.56 lakh applications in all.

The listing of Star Health was tepid, as the response to the IPO was. The issue which was priced at Rs 900 saw the discovered price at Rs 848.80 on BSE and Rs 845 on NSE. The share managed to close marginally positive at Rs 906.85, a gain of Rs 6.85 or 0.76 per cent. The issue size was reduced on account of poor subscription from 806.54 lakh shares to 676.91 lakh shares. Clearly shows that the one dozen merchant bankers got their math wrong on demand, pricing and made a mess of the issue. The traded and delivery volumes were pathetically low, making it difficult to assess which way the price would move. In any case, there has to be a significant volume increase for any material interest to come in the share.

The week ahead would see three shares list for trading. They are Tega Industries Limited, Anand Rathi Wealth Limited and Rategain Travel Technologies Limited.

The first of the issues that would be open for subscription in the coming week is C.E. Info Systems Limited which is tapping the markets with its offer for sale of 1,00,63,945 shares in a price band of Rs 1,000-1,033. The issue opened on Thursday the 9th of December and closes on Monday the 13th of December. The company C.E. Info Systems is better known as Map my India by its popular digital mapping device. The company is India’s leading provider of advanced digital maps, geospatial products in India with a comprehensive suite of Maas, (maps as a service), SaaS (software as a service) and PaaS (platform as a service). The company has built capabilities with marquee customers across sectors where they are able to up-sell and cross sell products. The business model ensures that subscription fees, royalties and annuities account for over 90 per cent of revenues for FY 21. The company charges fees per period based on per vehicle, per transaction, per use case, and or/per user, as applicable. This ensures a very good revenue visibility which is recurring in nature.

The EPS for the year ended March 2021 was Rs 11.30 while on a fully diluted basis it was Rs 10.99. For the first half year of FY22 the EPS is Rs 8.78 while on a diluted basis it is Rs 8.61. The PE for the issue at the top end of the band based on fully diluted EPS of Rs 10.99 for FY21 is 93.99 times. If one were to consider the same on the basis of first half FY22 fully diluted EPS on an annualised basis the same would reduce significantly to 59.88 times. The company is debt free and has investments which earn it other income as well. Further the issue is entirely an offer for sale and the entire proceeds would go to selling shareholders. The issue merits attention and at the end of two days of subscription is subscribed 5.32 times with Retail portion subscribed 7.08 times. Over 15 lac applications have been received.

The second issue is from Metro Brands Limited which is tapping the markets with its fresh issue of Rs 295 crore and an offer for sale of 2.14 crore shares in a price band of Rs 485-500. The issue opened on Friday the 10th of December and would close on Tuesday the 14th of December. The company is into retailing of shoes, leather accessories and allied products. It operates close to 600 stores across four verticals and had revenues of Rs 800 crore for the year ended March 2021. Its profit after tax was Rs 64.62 crore and it reported and EPS of Rs 2.43 for the period. Based on this EPS, the PE for the issue is a never heard of 205.76 times at the top end of the band. In the six-month period ended September 2021, revenues have improved to Rs 456 crore and the profit after tax was Rs 43.07 crore. The EPS was Rs 1.62 and even at this EPS, on an annualized basis the PE is a staggering 154.32 times. The company is valued in excess of Rs 13,000 crore and would trade at 16.6 times the revenue. Beats me how such valuations can be ascribed for this company. For the discerning investor, Bata India reported revenues of Rs 1,800 crore for the year ended March 2021 and currently has a market capitalisation of 26,000 crore.

The third issue to tap the capital markets is Medplus Health Services Limited, issue opens on Monday the 13th of December and closes on Wednesday, the 15th of December. The issue is for a fresh issue of 600 crore and an offer for sale of Rs 798 crore. The price band is Rs 780-796. The company is into the business of pharmacy stores and currently operates in seven states with over 2,300 stores. The company has added 350 stores in the first half of the current year ending September 2021 and would be adding a similar number in the next six months as well. Going forward the planned expansion of stores is to add close to 1,500 stores each year over the next two years.

The company reported diluted EPS of Rs 5.75 for the year ended March 2021. The PE at this EPS would be 135.65-138.43 times. In the current six months ended September 2021, the EPS has improved to Rs 5.99. If one were to annualise this the PE would reduce to 66.44 times. The company has growth and good prospects going forward.

The fourth and final issue is from Data Patterns Limited, which is tapping the capital markets with its fresh issue for Rs 240 crore and an offer for sale of 59.52 lakh shares in a price band of Rs 555-585. The issue opens on Tuesday the 14th of December and closes on Thursday the 16th of December. The company reported revenues of Rs 226.55 crore for the year ended March 2021, with a net profit of Rs 54.61 crore. The EPS was Rs 11.89. The PE on this Eps is 46.67-49.20 times. The company had recently done a pre-IPO placement of Rs 60 crore at Rs 577.

The company is a vertically integrated defence and aerospace electronics solutions provider catering to the indigenously developed defence products industry. Its offerings cater to the entire spectrum of defence and aerospace platforms — space, air land and sea. It would be a big beneficiary of the ‘Atmanirbhar Bharat’ programme where the Indian companies are spearheading the indigenisation program of our armed forces. The company is interesting and would be well received by the market.

Coming to the markets in the week ahead, they would continue to remain volatile and make attempts to move sharply in either direction. The fact that FII’ continue to be sellers, though the quantum of sales seems to be reducing, would be a dampener for the markets. The ‘Omicron’ variant is yet another joker in the pack and seems to be causing unjustified panic more than anything else. Markets would trade in a broad range with the lows of 56,400 on BSESENSEX and 16,800 on NIFTY being key supports. On the upside we could see another 2 per cent move but it would be accompanied by bouts of selling as well.

The strategy would be to sell on sharp rallies and buy on dips and also look at the top performing midcap and Smallcap stocks as well.

In conclusion we could see some consolidation and by and large a broad sideways move in the week ahead with focus on the primary markets.

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

20211212-160239

LEAVE A REPLY

Please enter your comment!
Please enter your name here