Some more steam before the inevitable correction steps in

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The week gone by saw markets gain sharply on expected lines. However, the volatility witnessed must have certainly increased the number of heart patients in the marketplace.

We saw markets have a great day with gains of over 2.2 per cent on Tuesday to coincide with the listing of shares of LIC of India Ltd. This was followed by an equally sharp fall on Thursday and yet again another sharp rally on Friday. What explains the kind of movement on Tuesday, Thursday and Friday is yet to be ascertained. The remaining two days of the week were flat with one day of gain and one day of loss.

The week ended with BSESENSEX gaining 1,532.77 points or 2.90 per cent to close at 54,326.39 points while NIFTY gained 484 points or 3.07 per cent to close at 16,266.15 points. The broader indices saw BSE100, BSE200 and BSE500 gain 3.01 per cent, 3.06 per cent and 3.16 per cent respectively. BSEMIDCAP was up 3.17 per cent while BSESMALLCAP was up 4.09 per cent.

The Indian Rupee lost 10 paisa or 0.13 per cent to close at Rs 77.55 to the US Dollar. Dow Jones had a torrid week and lost 978.90 points or 2.90 per cent to close at 31,261.90 points. Markets made a new 52 week low on Friday before recovering to close flat. Dow Jones is now down 13.97 per cent on a year-to-date basis. Dow was up three days during the week and lost on two days. Incidentally, there was a massive loss on Wednesday when Dow lost 1,165 points. NASDAQ continues to be under severe pressure and now trades at 11,354.62 points. NASDAQ on a year-to-date basis is down 27.42 per cent. With the tech pressure, one saw the IT stocks in India also under pressure and BSEIT was the top sectoral loser.

RBI has reduced the payment in form of dividend for the year ended March 2022 to a mere Rs 30,307 crore. This is in sharp contrast to the Rs 99,122 crore for the previous year. This incidentally is the lowest dividend from RBI to the government in the last decade.

Excise duty on Petrol has been reduced by Rs 8 per litre and Rs 6 per litre on diesel. This would see an impact of Rs 9.50 on petrol prices and Rs 7 plus on diesel. This would be further reduced if various states chip in with matching rate cuts on local taxes as well. Further there have been some cuts on import duties of certain plastic products and steel manufacturing products as well.

The primary markets were active last week with two listings and two issues opening and closing for subscription. A third issue has opened for subscription and would close on Tuesday.

The mega issue from LIC of India Limited which had issued shares at Rs 949 listed on the bourses on Tuesday. The share had a tepid listing and closed with losses. It ended day one at Rs 875.45, a loss of Rs 73.55 or 7.75 per cent. At the end of the week, the share had lost further ground and closed at Rs 826.45, a loss of Rs 122.55 or 12.9 per cent.

The second listing was on Friday of Prudent Corporate Advisory Services Limited which had issued shares at Rs 630. Shares closed day one at Rs 562.70, a loss of Rs 67.30 or 10.68 per cent. Incidentally, this company as per the basis of allotment saw its retail portion subscription reduce significantly by 17.40 lakh shares in an issue size of 85.49 lac shares. Effectively this meant that an issue which was subscribed 1.22 times was reduced to being undersubscribed to the extent of just 80 per cent. Surprising the way the system works and is being creamed by the intermediaries and management concerned.

The first issue which was open for subscription was from Paradeep Phosphates Limited. The issue was open from Tuesday the 17th of May till Thursday the 19th of May. It was subscribed 1.88 times overall with QIB portion being subscribed 3.40 times, HNI portion undersubscribed at 0.86 times and Retail portion subscribed at 1.44 times.

The second issue was from Ethos Limited which had opened for subscription from Wednesday the 18th of May and closed on Friday the 20th of May. The issue was subscribed overall 1.10 times with QIB portion subscribed 1.17 times, HNI portion subscribed 1.54 times and Retail portion under subscribed at 0.87 times. One hopes that one doesn’t experience any changes in subscription levels as was visible in the case of Prudent. God forbid if something like that happens, investors would lose complete faith in the bidding system used in IPOs.

The third issue which has opened for subscription is from eMudhra Limited. The company is tapping the markets with its fresh issue for Rs 161 crore and an offer for sale of 98.35 lakh shares in a price band of Rs 243-256. The issue opened for subscription on Friday the 20th of May and would close on Tuesday the 24th of May. The company is into the business of certifying authority of digital signatures. The issue on the first day was subscribed 0.49 times with the retail portion subscribed 0.96 times.

The second issue to open for subscription is from Aether Industries Limited which would open on Tuesday the 24th of May and close on Thursday the 26th of May. The fresh issue consists of Rs 627 crs and an offer for sale of 28.20 lakh shares in a price band of Rs 610-642. The company is into the business of manufacturing super speciality chemicals at its facility in Sachin near Surat in Gujarat.

The company reported revenues of Rs 450 crore for the nine months ended December 2021 and a net profit of Rs 82.9 crore for the same period. It enjoys a PAT margin of 18.45 per cent which is sustainable going forward looking at the order book, niche products and customer base. The company is expanding its manufacturing base as well. The EPS reported for the nine months was Rs 7.45. If one were to annualise these numbers, the EPS would be Rs 9.93. Based on these numbers, the PE band for the issue would be 61.43-64.65. These numbers are without considering the dilution of equity or the incremental growth that the company would experience in the current financial year 2022-23. Niche business, but looks a tad expensive considering the limited five-year manufacturing experience of the company.

The week ahead would see shares of Delhivery Limited and Venus Pipes lists on Tuesday the 24th of May.

The week ahead has May NIFTY futures expire on Thursday the 26th of May. The current level of NIFTY at 16,266.15 points is lower by 978.90 points or 5.68 per cent. It’s a strong lead for the bears and they are unlikely to allow the bulls to have their way. While bulls will try and recover some lost ground as they did last week, expect markets to gain initially and then correct as we get closer to the 16,500-16,650 levels. Global markets led by Dow have become not only highly volatile but vulnerable with inflation and price rise hitting every country.

The trading strategy would be to allow the markets to gain initially and then sell on strong rallies. Buying is warranted only on dips. Readers must bear in mind that the kind of volatility witnessed last week and over the last month or so is indicative of high nervousness. Such markets have always been vulnerable and tend to trade with a negative bias. While there is a possibility of some more upward movement, suffice to say that the possibility of a new low is more likely than the possibility of that not happening. As of last week, we came close to the low made on 8th of March 2022, and were short of just 400 points on the BSESENSEX and 140 points on NIFTY. This break in the medium term is imminent with only the rise before the fall uncertain. Trade cautiously.

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

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