Tired Markets, Expiry Might Spark Change

Even though markets seem to be tiring out and are finding it difficult to hold on, the momentum and the fact that it’s a mere four days to go, would ensure that they win the series…writes Arun Kejriwal

Markets were open for four trading sessions in the previous week as there was a trading holiday on Monday. They were a little volatile but managed to close with small gains. There has been sector rotation with banking being at the forefront on Wednesday led by sugar stocks and then fertilizer and finally railway stocks.

 What could be a cause of concern going forward is the volumes in the fertilizer stocks when they gained sharply. BSESENSEX gained on three of the four sessions while it lost on one. NIFTY on the other hand gained on two and lost on two sessions.

At the end of the four-day week, BSESENSEX gained 217.13 points or 0.28 per cent to close at 77,209.90 points while NIFTY gained 35.50 points or 0.15 per cent to close at 23,501.10 points.

The broader markets saw BSE100 and BSE200 lose 0.04 per cent and 0.14 per cent respectively while BSE500 gained 0.04 per cent. BSEMIDCAP was down 0.20 per cent while BSESMALLCAP was up 1.44 per cent.

The pace at which the BSESMALLCAP and BSEMIDCAP indices have risen is a cause for concern and yet another fund house has raised valuation concerns in these segments.

The Indian Rupee gained 3 paisa or 0.04 per cent to close at Rs 83.53 to the US Dollar. Dow Jones gained on all four trading sessions of the week and gained 561.17 points or 1.45 per cent to close at 39,150.33 points.

In primary market news, we had one listing, and two issues opening and closing for subscriptions while yet another issue had opened and would close in the following week. Two new issues would open and close in the coming week.

The issue from Le Travenues Technology Limited who had issued shares at Rs 93 debuted on Tuesday, the 18th of June. Shares closed day one at Rs 161.99, a gain of Rs 68.99 or 74.88 per cent.

By the weekend the share gained further and closed at Rs 169.18, a gain of Rs 76.18 or 81.91 per cent.

The issue from Dee Development Engineers Limited who had issued shares in a price band of Rs 193-203 received an excellent response and was oversubscribed 102.32 times. The QIB portion was subscribed 206.54 times, the HNI portion subscribed 148.99 times and the Retail portion subscribed 23.21 times. There were 20.61 lakh applications in all.

The second issue was from Akme Fintrade (India) Limited which had issued shares in a price band of Rs 114-120. The issue was subscribed overall 54.24 times with QIB portion subscribed 28.12 times, HNI portion subscribed 129.79 times and Retail portion subscribed 44.14 times. There were 12.07 lakh applications. The QIB portion response was comparatively muted if one looks at other issues and even the HNI response in this issue. This was probably because the company has higher NPA’s and is in a competitive landscape environment in the NBFC space.

The third issue was from Stanley Lifestyles Limited which opened on Friday and would close on Tuesday the issue was subscribed 1.44 times on the first day. The price band is Rs 351-369.

The week ahead sees the issue from Allied Blenders and Distillers Limited open on Tuesday the 25th of June and close on Thursday the 27th of June. The issue consists of a fresh issue of Rs 1,000 crores and an offer for sale of Rs 500 crores in a price band of Rs 267-281.

The company has a distillery in the state of Telangana and 32 bottling plants across the country. Its brand ‘OFFICERS CHOICE’ has been the world’s largest-selling whisky by volume during 2016-2019.

The company has been under stress and is raising money through the IPO to retire debt to the extent of Rs 720 crores. Further, prior to going public, the promoter has rationalised the board and separated ownership and management. The new board is entirely professional and would entail a saving of rupees 93 crores in terms of compensation to promoters going forward.

The repayment of interest and this compensation would entail a total saving of over rupees 200 crores in the financial year ending March 25. This would change the financials of the company which has just about been positive.

Considering the infrastructure, prospects post rationalisation and improvement in margins, it appears an investment which is warranted considering rising demand, socio-economic acceptance of liquor and growing aspirations.

The second issue is from Vraj Iron and Steel Limited which is tapping the capital markets with its fresh issue of rupees 171 crores in a price band of Rs 195-207. The issue opens on Wednesday the 26th of June and closes on Friday the 28th of June. The company manufactures M S Billets and TMT bars and uses the sponge iron route for doing so.

It is located in Chhattisgarh and has its plants at Raipur and Bilaspur. To better use the flue gas, it has a waste recovery plant and generates power which helps in the reduction of cost. The object of the issue is to raise money for the expansion of sponge iron capacity and MS Billets at Bilaspur and repayment of a loan taken from the bank for funding this project in the interim.

The issue is attractively priced and offers scope for appreciation in the medium term. There could also be listing gains looking at the market mood.

The week ahead sees June futures expire on Thursday. The current value of the June series at 23,501.10 points is 1,012.45 points or 4.50 per cent higher than the start of the series. Bulls are very well placed currently and have the upper hand considering we have a mere four days to expiry.

Even though markets seem to be tiring out and are finding it difficult to hold on, the momentum and the fact that it’s a mere four days to go, would ensure that they win the series. They may at best concede some ground. One needs to remember that FPIs have been covering their shorts this series after the results of the general elections were announced on 4th June.

Markets seem to be trading in a broad range where 23,650-23,700 is a top at the moment on NIFTY and 22,800-850 a bottom. These levels seem difficult to be taken out currently and it should be a tough time to break out. The biggest driver in the immediate future is the budget which could happen during the period 18th-23rd July. This event has the potential to make the markets break in either direction.

The strategy for the week ahead would be to remain cautious with expiry happening. The bears led by FPIs will try to bounce back to the extent possible. Further there would be little or no news flow as well. Sector rotation is already happening and new stock ideas are difficult to come by. In such a scenario its advisable to play safe and take some money off the table. Keep the money aside for a day when new ideas emerge.

In conclusion, trade cautiously in a week where volatility is likely to rise on account of expiry as the bulls and bears intensify their action.

Capital goods, infra sector, banking are the hot FPI favourites

FPIs bullish on Indian markets

Buoyed by the policy and reform continuity, foreign portfolio investors (FPIs) have altered their position in the equity market following the election results, injecting Rs 23,786 crore since June 10, industry analysts said on Saturday.

There are three primary reasons for this positive inflow.

“First, the continuity of the government assures ongoing reforms. Second, the Chinese economy is decelerating, as evidenced by a 12 per cent decline in copper prices over the past month,” said Sunil Damania, Chief Investment Officer, MojoPMS.

Third, certain block deals in the market have been eagerly taken up by FPIs.

“However, these FPI inflows are concentrated in a select few stocks rather than being widespread across the market or sectors,” Damania said.

Till June, FPIs sold equity for Rs 11,193 crore.

According to market experts, it is interesting to note that this net sell figure is composed of selling through the exchanges for Rs 45,794 crore and buying through the “primary market and others” for Rs 34,600 crore.

FPIs are selling where valuations are high and buying where valuations are reasonable.

Analysts believe that FPI inflows will remain constrained due to the high valuations currently commanded by the Indian equity market.

Meanwhile, the Indian market initially continued its upward trend as concerns over election outcomes eased and global sentiment improved.

With a coalition government in place, there is optimism that the upcoming budget will strike a balance between growth initiatives and populist measures, they noted.

ALSO READ: Indian Economy Sees $1 Billion NRI Inflows in April

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