The dark side of diamonds as scam hits hard; clinging on for dear life above churning waters
NCP activists protest against Nirav Modi and the Punjab National Bank fraud case. Pic/PTI
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Markets continued to be choppy and volatile. They gained on two of the five trading sessions but managed to eke out weekly gains after a sharp rally on Friday. BSESENSEX gained 131.39 points or 0.38 per cent to close at 34,142.15 points. NIFTY gained 38.75 points or 0.37 per cent to close at 10,491.05 points. The broader markets saw the BSE100, BSE200 and BSE500 gain 0.17 per cent, 0.37 per cent and 0.17 per cent respectively. BSEMIDCAP lost 0.24 per cent while BSESMALLCAP lost 0.22 per cent.
Who gained?
The top sectoral gainer was BSEIT up 3.25 per cent followed by BSETECK 2.86 per cent and BSEMETAL 1.33 per cent. The top sectoral loser was BSEAUTO down 1.83 per cent followed by BSECAPGOODS 1.64 per cent and BSEREALTY 1.19 per cent. In individual stocks the top gainer was TCS up 4.54 per cent. In other stocks Tech Mahindra gained 5.77 per cent while Vedanta was up 5.45 per cent. The top loser was Bajaj Auto down 3.85 per cent followed by M&M 3.48 per cent. In other stocks, Bank of Baroda was down 4.67 per cent.
Modi-fications
Dow Jones lost 256.90 points or 1.03 per cent for the week to close at 24,962.48 points. The Indian Rupee was weak and lost 52 paisa or 0.80 per cent to close at Rs 64.73 to the US Dollar. The ongoing scam involving PNB and Nirav Modi has had its repercussions on the banking and gems and jewellery industry. While bankers have become averse to lending and are becoming strict in paperwork, the gem and jewellery industry which is highly working capital intensive is bearing the brunt after earlier scams too. The share price of PNB saw a weekly loss of R 12.25 or 10.80 per cent to close at R 113.80. Gitanjali Gems lost R 12.75 or 51.41 per cent to close at R 24.80.
Choppy phase
February futures expired on a weak note and the series lost 686.95 points or 6.62 per cent to close at 10,382.70 points. The series has been under pressure after the presentation of the budget on February. The month has been choppy and volatile as well. The new series began on a positive note and NIFTY gained 109 points on the first day of the series which happened to be the last day of the week.
Share value
In primary market news, we have an IPO opening on Monday from H G Infra Engineering Limited. The company is tapping the capital markets with its simultaneous fresh issue of R 300 crore and an offer for sale of R 300 crore in a price band of R 263-270. The issue closes on Wednesday, February 28. The shares are valued at a price earnings multiple of between 26.65 to 27.36 times based on consolidated EPS of R 9.87 for the year ended March 2017.
Listing day
SEBI has through a circular removed the misconception of the SME exchange about listing day which would affect subscription levels of SME issues. On the main board, if a issue was of a value or size of less than R 250 crore, the company would list on the trade to trade segment, and would have a 5 per cent price band for the next ten trading days. There would be a price discovery mechanism as well. Currently on the SME the issue price was the discovered price and they were traded at a 20 per cent circuit with no trade to trade. This allowed huge subscription and oversubscription on the SME segment. The exit route was the third day when prices could be up about 60 per cent. With this clarification and the last issue to list on BSE SME platform following these guidelines, this kind of subscription seen hitherto would be a thing of the past.
Tough going
Markets are going through real tough times these days. We have the effect of LTCG, world markets, and correction to a 11-month rally and as if all this was not enough the home grown mega scam involving Nirav Modi and his maternal uncle Mehul Choksi. These scams have hit the market quite badly and we seem to be just holding on. This is certainly not the end of it all and the addition of Rotomac and another Delhi based jeweller is making things murkier.
The perception
The diamond trade by nature of its activities suffers from a perception issue and the present case would confirm a lot of doubts which existed. The round tripping of transactions of diamond companies from an office in Hong Kong, to one in the USA, yet another in Europe and finally one in Mumbai is well known. Will this perception ever change? If so, when will it change? This is anybody’s guess.
Be wary
Markets would be choppy and volatile. They would make an attempt to build on the base they have made last week. They are about 6.5 per cent to 6.75 per cent off their highs made on January 29 and would take quite some time to get back there. The provision of LTCG which allows booking of profits under the act till March 31, 2018 would ensure that every meaningful rally is sold into. Trade cautiously.
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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