Arun Kejriwal: Play it by ear

Congress President Rahul Gandhi's controversial hug on no-confidence motion day. Pic/PTI

It was a volatile week and to add to the twists, we also had political drama in the form of a no-confidence motion being debated and voted upon. The BSESENSEX lost a mere 45.26 points or 0.12 per cent to close at 36,496.37 points. NIFTY lost 8.70 points or 0.08 per cent to close at 11,010.20 points. The broader markets saw the BSE100, BSE200 and BSE500 lose 0.30 per cent, 0.36 per cent and 0.62 per cent respectively. BSEMIDCAP lost 1.55 per cent and BSESMALLCAP lost 3.02 per cent. The week had two up days and three down days.

Stock talk
The top sectoral gainer was BSEIT up 1.28 per cent followed by BSECON DUR 1.04 per cent and BSETECH 0.80 per cent. The top loser was BSEMETAL down 6.31 per cent followed by BSEREALTY 4.33 per cent and BSEHEA CARE 2.90 per cent. In individual stocks, the top gainer was Infosys, up 2.89 per cent followed by Reliance 2.83 per cent. In other stocks Bank of Baroda was up 3.06 per cent. The top loser was Dr Reddy's down 12.69 per cent followed by Hindalco 11.69 per cent, Tata Steel 10.87 per cent and Bajaj Auto 10.31 per cent.

The Indian Rupee lost 32 paisa or 0.46 per cent to close at Rs 68.84. Dow Jones gained a tad and was up 38.71 points or 0.15 per cent to close at 25,058.12 points.

The week ahead sees July futures expire on Thursday, July 26. The current value of NIFTY at 11,010.20 is higher by 421.10 points or 3.82 per cent. With four trading sessions to go for expiry, bulls have the upper hand and they are likely to take the series as well. Post expiry, there would be another three days of trading in July to ensure the 11-year track record of markets rising in July to hold good.

Higher pricing
The offer for sale from TCNS Clothing Co. Limited was subscribed 5.27 times with the QIB portion subscribed 13.47 times, HNI portion subscribed 5.08 times and Retail portion undersubscribed 0.67 times. The company is into the retailing of women's apparel under its three brands, W, Aurelia and Wishful.

There is another IPO this week from HDFC which is offering for sale 2.54 crore shares in its asset management company, HDFC Asset Management Company Limited. The price band is Rs 1,095 to 1,100. The issue opens on Wednesday, July 25 and closes on Friday, July 27. The company has an AUM (assets under management) of Rs 2.92 lakh crore, of which 51 per cent is equity and 49 per cent is non-equity. The company had a net profit of Rs 721.62 crore and therefore an EPS of Rs 34.96. The offer for sale at the top end of the band is at 31.46 times, its EPS, which is significantly higher than that of Reliance Nippon Life Asset Management, which is the only other listed player in the space. The brand HDFC has a better acceptance and that could probably explain the rationale for the higher pricing.

Struck down
Investors in the issue are probably lucky that the pricing has been kept at these multiples, as the market expectation was for even higher valuations. The company had allotted shares at Rs 1,050 to its distributors, which was struck down by SEBI. The company was then asked to buyback these shares and pay interest to the applicants. The company chose instead to buy back the shares through KKR at the issue price of Rs 1,050 along with an interest component of 12 per cent per annum which amounted to R 25 per share. As these shares would be under lock-in, this effectively became a price discovery and hence the extremely narrow price band.

Crucial bills
The TDP sponsored no-confidence motion was tabled, taken up for discussion and was defeated. All of this happened on Friday and on expected lines. One hopes that with the same now behind us, the Lok Sabha would get down to business and pass crucial bills which have been pending for a very long time.

On a year to date basis the BSESENSEX is up 6.68 per cent, while NIFTY is up 4.36 per cent. BSEMIDCAP is down 17.28 per cent and BSESMALLCAP 22.32 per cent. All the pain is confined to the mid and small cap segments. It appears that we are getting to the end of the pain period. While the fall may be arrested, the recovery would be slow and take a long time before there is any meaningful recovery.

Bull run
Markets were quite volatile last week and had events to explain for the same. In the coming week, expiry would be a key event to watch out for. With bulls managing to have the upper hand so far, it would be appropriate to expect them to carry the day and the series. Play markets by the ear and refrain from taking short positions.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd.
Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is for educational and information purposes only.

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