Arun Kejriwal: Tread with care

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Markets were on a roll and the BSESENSEX registered a new all-time high crossing its January 2018 level. The BSESENSEX gained 883.77 points or 2.42 per cent to close at 36,541.63 points. NIFTY gained 246.25 points or 2.23 per cent to close at 11,018.90. NIFTY is a shade short of its all-time high of 11,130.40 points. The broader markets saw the BSE100, BSE200 and BSE500 gain 1.85 per cent, 1.705 and 1.61 per cent respectively.

Top gains
The top sectoral gainer was BSEOIL&GAS at 3.25 per cent followed by BSEIT 3.08 per cent and BSETECH 2.00 per cent. The top loser was BSEMETAL down 1.20 per cent followed by BSEAUTO 0.55 per cent. In individual stocks the top gainer was Reliance Industries which gained Rs 120 or 10.97 per cent to close at Rs 1,097. This, incidentally, is a lifetime high for Reliance. The other gainers included Yes Bank 6.38 per cent and Wipro 6.31 per cent. The top loser was Zee Entertainment which was down 6.93 per cent. Other losers included Lupin 5.90 per cent, Ambuja Cement 5.17 per cent and Hero Moto 5.09 per cent. Dow Jones had a good week gaining 562.93 points or 2.25 per cent to close at 25,019.41 points. The Indian Rupee recovered 35 paisa or 0.51 per cent to close at Rs 68.52.

It's expensive
There is a primary issue this week from TCNS Clothing Company Limited. This company retails ladies fashion garments under three brands, namely W, Aurelia and Wishful. The issue consists of an offer for sale of 1.57 crore shares in a price band of Rs 714-716. The issue opens on Wednesday, July 18 and closes on Friday, July 20. The promoters and the Private Equity Investor would be selling almost a fourth of their shares. The company reported a top line of Rs 849.16 crore and a net profit of Rs 97.76 crore for the year ended March 2018.

The EPS for the year on a diluted basis is Rs 15.36. The price earnings multiple at which the share is being issued is at 46.48 to 46.61 times. This valuation is certainly not cheap by any standard if compared with the listed player like Kewal Kiran. It is cheaper when compared with Page Indus tries, Aditya Birla Fashion and Future Life Style. The difference between these companies is their size in terms of revenues which is many times more than that of TCNS. The fact that this is an offer for sale and no money would go to the company also adds to the expensive tag.

Strong show
Last week was a strong show by the markets and the BSESENSEX has gained 1,100 points so far in the month of July. NIFTY on the other hand has gained almost 400 points. It appears that history would be repeated where for 11 consecutive years in the month of July, markets have registered strong gains.

Last week, was a narrow and skewed rally with just a handful of heavyweight stocks on the benchmark indices gaining. Going forward if the rally must sustain, the breadth of the markets would have to improve, and many more stocks would have to participate in the same. The rally would then in the final leg extend to the mid and small cap stocks and provide an opportunity to those investors who are stuck with the market falling post January end. There is a catch here, that the investor who was stuck and is now able to exit, must not become greedy and buy stocks just because there is market momentum. He must resist temptation and refrain from buying stocks which do not have fundamentals, otherwise he would be just switching stocks. He would be selling stocks in which he was stuck and buying stocks in which others were stuck.

Trump stump
Globally, Donald Trump has fired another salvo imposing further duties on Chinese imports. The situation is not to good and is cause for concern. The mood in the market seems to be ignoring all of this and continues to be on a roll. Enjoy the rally till it lasts but be cautious of not being a net investor.

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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