Friday, July 12, 2024

Markets would consolidate this week

Markets continued making new highs during the week, but showed their vulnerable side as well when they corrected on Friday, the last day of the week quite sharply. They have become volatile and are subject to sharp movements in either direction. While the top may or may not have been reached as yet, we would spend some time here before deciding the next course of action. The impending quarterly results would have a big part to play in market movement going forward.

BSESENSEX gained 561.89 points or 0.87 per cent to close at 65,280.45 points, while NIFTY gained 142.75 points or 0.74 per cent to close at 19,331.80 points. The broader markets saw BSE100, BSE200 and BSE500 gain 0.73 per cent, 0.75 per cent and 0.85 per cent respectively. BSEMIDCAP was up 0.77 per cent while BSESMALLCAP gained 1.62 per cent. Markets gained on three of the five trading sessions, were flat on one and lost on the last trading session.

The Indian Rupee was under pressure and lost 70 paisa or 0.85 per cent to close at Rs 82.74 to the US dollar. Dow Jones gained on the first day of the week and lost on the remaining three. Tuesday was a holiday on account of American Independence Day. Dow Jones was down 671.11 points or 1.95 per cent to close at 33,734.88 points.

In primary markets news, the week saw two listings, one issue open and closed for subscription and one more issue which had opened in the previous week, withdrew the issue as it did not garner enough subscription.

The issue from HMA Agro Resources Limited which had issued shares at Rs 585 listed on Tuesday the 4th of July. The share, after trading with gains, succumbed to selling pressure and closed with a minor loss at Rs 584.75, down Rs 0.25. At the end of the week, the share closed at Rs 588.30, a gain of Rs 3.30 or 0.56 per cent.

Friday saw the listing of drone maker IdeaForge Limited. The issue had received excellent response and was subscribed over 100 times. The company had issued shares at Rs 672 and the share closed on debut day at Rs 1,295.50 gaining a massive Rs 633.50 or 92.78 per cent.

The issue from Senco Gold Limited which had tapped the capital markets with its fresh issue of Rs 270 crore and an offer for sale of Rs 135 crore in a price band of Rs 301-317 was oversubscribed. The overall issue was subscribed 73.35 times with QIB portion was subscribed 180.94 times, HNI portion was subscribed 64.98 times and Retail portion was subscribed 15.45 times. There were 14.25 lakh applications overall.

PKH Ventures Limited had tapped the capital markets with its issue and was subscribed a mere 0.65 times. The QIB portion was subscribed 0.11 times, HNI portion subscribed 1.67 times and Retail portion was subscribed 0.99 times. In a communication to the exchanges, the company through its merchant banker blamed the prevailing market conditions for the poor response and hence withdrawal of the issue. One wonders whether with markets being at their lifetime highs, one can actually blame the market conditions for the inadequate response. Beats me.

The week ahead sees a new issue hitting the capital markets. Utkarsh Small Finance Bank Limited is tapping the capital markets. The company is launching its issue with a fresh issue of Rs 500 crore in a price band of Rs 23-25. The issue opens on Wednesday the 12th of July and closes on Friday the 14th of July. The company as the name suggests is a small finance bank and is into microfinance and other lending products. Its current business is focused in the Hindi heartland of UP, Bihar and Jharkhand.

The banking industry, particularly microlending was affected during the covid years. Post normalisation, the entire industry has rebounded quite strongly and Utkarsh was no exception. It has a loan portfolio of roughly Rs 14,000 crore and enjoyed healthy net interest margins of 9.57 per cent. The company reported a profit after tax of Rs 404.50 crore for the year ended March 23. The EPS for year ended March 23 on a fully diluted basis was Rs 4.51. The PE band for the issue is 5.10-5.54. The NAV of the bank for the same period is Rs 22.33. The issue is being priced slightly higher than the book value and would be at 1.12 times price to book.

The issue looks attractive and would be very well received by investors. As a corollary to the price, there is a very active grey market for the share where the premiums are very healthy considering the attractive price and scope for appreciation.

Markets made an intraday high of 65,832.98 points and a closing high of 65,785.64 points on the BSESENSEX. Similar levels on NIFTY were at 19,512.20 points and 19,497.30 points. What was significant is the fact that markets have achieved the required 3 per cent higher levels from the previous top of 1st December 2022. The immediate requirement of the rally has been achieved.

Results season kicks in from the week ahead with TCS declaring results on Wednesday the 12th of July followed by Wipro on Thursday the 13th of July. Results this quarter would be crucial for the rally as markets are trading substantially higher than a year ago and have factored a significantly higher performance from corporate India this time around.

The record date for demerger of Jio Financial Services from Reliance has been announced as 20th July. This would keep the share of Reliance active in the coming days. Further with the merger of HDFC and HDFC Bank happening on 12th July, expect volatile trading in these shares as well. These two shares, Reliance and HDFC could provide the heavyweight support to the markets in the coming days.

Markets would be volatile as it looks to make a new base for itself. The highs made on Thursday 6th July would be the immediate resistance while solid support exists at previous tops of 18,900 on NIFTY and 63,600 on BSESENSEX. It would be a good strategy to shift focus to large cap stocks and keep only a handful from the midcap and Smallcap stocks on the radar. Results and sector specific news would drive markets. Remain light as far as overnight positions are concerned as data from the US points to tough labour market conditions and continuing high inflation.

Trade cautiously.

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

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