New highs are within approaching distance – When would they be crossed?

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Markets were on a roll last week and did much better than expected. The only note of caution was towards the second half of the week when on Thursday the rise was much less than the earlier days and Friday saw markets recovering from early losses dramatically, but closing almost flat. At the end of the week BSESENSEX gained 1,478.38 points or 2.47 per cent to close at 61,223.03 points while NIFTY gained 443.05 points or 2.49 per cent to close at 18,255.75 points. The broader markets saw BSE100, BSE200 and BSE500 gain 2.48 per cent, 2.45 per cent and 2.50 per cent respectively. BSEMIDCAP gained 2.40 per cent while BSESMALLCAP was up 3.06 per cent.

The Indian Rupee gained 15 paise or 0.20 per cent to close at Rs 74.15 to the US Dollar. Dow Jones had a choppy and volatile week with sharp intraday swings. It closed with losses of 319.85 points or 0.88 per cent at 35,911.81 points.

In data which should be considered very important for the stock market perspective, demat accounts in the country have doubled from 4.08 cr accounts in April 2020 to 8.05 crore as of current date. Similarly, the strength of the Indian investors collectively has been brought out where they have invested through SIP (Systematic investment plan) over the last five years Rs 4.57 trillion. Against this over the last 7 years, FII’s have invested Rs 3.53 trillion in Indian markets. On a like to like basis, FII’s have invested on average 50,000 crore per year while domestic investors have invested on average 91,000 crore per year. These numbers become significant and add weight to the fact that even when FII’s were sellers in the Indian markets, our markets held their own and did not fall. This was contrary to what would happen in earlier times when there was a direct relation to FII purchases and sales and market movement.

Life Insurance Corporation of India Limited or LIC is expected to file its DRHP later this month. The number of policyholders and those of them who do not have a demat account is very large as of now. This number could be as large as 4-5 crore unique policy holders. There would be a need for them to open a demat account as the government proposes to have a reservation of shares for such policy holders and would also be offering them a discount to the issue price. I believe this could be a very big initiative in bringing at one shot many new first-time investors to the capital market. Would not be surprised if this would work out on similar lines that the Jan Dhan Yojana did to the banking sector. Readers would recall the flurry of initiatives that the banking sector saw post that and the growth of fin-tech companies and multiple platforms offering schemes for the bottom of the pyramid and upwards. Final number of unique policy holders and those not having a demat account would probably find mention in the DRHP once available.

Covid-19 has seen a spurt in cases in the country as well. The good part is that systems are better placed this time around than they were when the second wave hit us. The number of vaccinations has increased to 156.79 crore of which the first vaccination is 90.91 crore and fully vaccinated are 65.46 crore. The precaution dose which has just begun has seen 0.42 crore vaccinations so far.

The first primary issue for the calendar year 2022 would open on Wednesday the 19th of January and close on Friday the 21st of January. The issue from AGS Transact Technologies Limited is an offer for sale of Rs 680 crore in a price band of Rs 166-175. The company is into the business of providing customised products and services comprising ATM and CRM outsourcing, cash management and digital payment solutions including merchant solutions, transaction processing services and mobile wallets.

The issue which is an offer for sale would see the promoter settling the loans taken for providing an exit to the PE investor before the shares are listed on the bourses. An amount of Rs 650 crore from the offer proceeds would be utilised for the same. This would lead to a significant surge in profitability for the company as the cost of interest on this loan would cease to remain there. The company had reported an EPS of Rs 7 in FY 2020 which fell to Rs 4.62 in FY 2021. Based on this EPS, the PE band is 36.48-38.46 times FY 2021 earnings. As mentioned earlier, this would stand corrected as the loan gets repaid and results in profits moving up significantly and the EPS rising to much higher levels than the FY 2020 numbers. The trigger for the share would be the digital initiative that the company has and revenues could rise sharply in the coming two to three years. The share merits a look and investment would be beneficial for investors in the medium to long term.

Coming to the markets in the week ahead, they would be choppy and volatile. NIFTY has risen 1,051.80 points or 6.11 per cent in the first fortnight of January or January series and that would be difficult to replicate as we go forward. There would be corrections and provide plenty of trading opportunities. Further, the primary market is opening up for the year now that Sankranti is over many issues are expected in the next fortnight. This would keep markets active but volatile. Secondly, with such a spectacular rise and new lifetime highs within a couple of days move away only, expect heightened volatility and also a few corrections. I strongly believe that even though markets are in an uptrend, they cannot run away from here.

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

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