The seatbelt sign is on

Union Finance Minister Arun Jaitley (l) listens to Attorney General Mukul Rohatgi during the inauguration of 'Global Conference on National Initiative towards Strengthening Arbitration and Enforcement in India' in New Delhi on Friday. Pic/PTI

Union Finance Minister Arun Jaitley (l) listens to Attorney General Mukul Rohatgi during the inauguration of 'Global Conference on National Initiative towards Strengthening Arbitration and Enforcement in India' in New Delhi on Friday. Pic/PTI

A sharp 520 points rally on Tuesday fuelled by short covering, enabled the markets to pull ahead and close in positive territory. The BSESENSEX gained 403.58 points or 1.46 per cent to close at 28,077.18 points while NIFTY gained 109.65 points or 1.28 per cent to close at 8,693.05 points. The broader indices saw the BSE100, BSE200 and BSE500 gain 1.39 per cent, 1.28 per cent and 1.32 per cent respectively. BSEMIDCAP gained 1.36 per cent and BSESMALLCAP was up 1.94 per cent.

Win and lose
In sectors, the top gainer was BSEBANKEX up 4.00 per cent followed by BSEIT 1.94 per cent and BSEPSU 1.86 per cent. In losers there was just one BSEAUTO down 1.37 per cent. In individual stocks the top gainer was ICICI Bank after the Essar deal with Rosenoft as their NPA's would now be paid and settled. ICICI Bank gained 14.82 per cent followed by Idea Cellular 7.02 per cent, BHEL 6.82 per cent and Rural Electric 6.63 per cent. The losers were led by Hero Motocorp down 3.48 per cent followed by Mahindra & Mahindra 2.21 per cent and Hindalco 1.71 per cent.

The Govt. completed the Offer For Sale (OFS) of nine crore shares of NBCC at a floor price of R 246.50. The cut-off price was the floor price. The share fell and closed at R 241.30. The loss during the week was R 15 or 5.85 per cent. This loss happened on Thursday and Friday, after the OFS was announced. The Dow Jones was virtually flat gaining 7.33 points or 0.04 per cent to close at 18,145.71 points. The Rupee lost 19 paisa or 0.28 per cent to close at R 66.89 to the dollar.

The housing issue
There are two IPOs this week. The first is from PNB Housing Finance Limited. The company is raising R3,000 crore from a fresh issue in a price band of R 750-775. The issue opens on Tuesday, October 25 and closes on Thursday, October 27, 2016. The company uses leverage as a key to its business. The company is currently leveraged 16 times based on the March 2016 numbers. It has an EPS of R 27.6 for the year ended March 2016 and R 7.6 for the quarter ended June 2016.

The price to book on historical numbers of March 2016 is 4.6 times while post issue on a fully discounted basis would be 2.5 times. This compares favourably with LIC Housing at 3.17 times and HDFC at 6.46 times. 70 per cent of its loan book is home finance and the geographical spread has changed significantly with North India being 40 per cent against 52 per cent a mere two years ago. The company is in a high growth sector, and with the 3,000 crore that it would raise would be in a sweet spot.

A close look
The second issue is from Varun Beverages who is the franchisee of Pepsico in India. The company is raising through a simultaneous issue of 1 crore shares offer for sale and fresh issue of 1.5 crore shares in a price band of R 440-445, R 1,100-1,112.5 crore. The company has roughly 44 per cent territory in terms of Pepsi's India sales. The carbonated soft drink is primarily a seasonal product with the bulk of the revenue coming in the first half of the calendar year. The company reported net sales of R 3,394 crore in the calendar year ended December 2015 and R 2,529 crore in the six month period ended June 2016.

The company has increased its territory buying out some smaller bottler and some from Pepsico in the last year. This makes them contiguous in North India leaving aside J&K and the North East. Losses were suffered in the years 2013 and 2014 while a net profit of R 87 crore was made in 2015. In the current year, first half the company has made a net profit of R 167 crore but in the second half, there would be a loss on account of poor off take and seasonality. The issue looks expensive, and, may be looked at after listing as there are no comparable for this sector.

Handle with care
The week ahead sees October futures expire on Thursday, October 27. The current value of NIFTY is higher by 101.80 points or 1.18 per cent. With such volatility there is hardly an advantage to either the bulls or the bears. Looking at the market losing momentum, the bears have the edge. Markets would continue to remain choppy but seem to be slipping slowly but steadily. While indices have not registered significant losses, they are becoming weak. The week ahead would see volatility. Sunday would be Muhurat Trading for the new Hindu Year. Trade
with caution.

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.