Markets to remain volatile and choppy (Market Watch)

By Arun Kejriwal

Markets behaved in the short three-day week on expected lines. There was a dead cat bounce on the opening day with markets gaining ground quite sharply. They lost ground on the remaining two days thereafter. Thursday saw 'Muhurat trading begin for new Samvat 2078 on an auspicious note with markets gaining. At the end of the three-days and Muhurat trading, BSESENSEX gained 760.69 points or 1.28 per cent to close at 60,067.62 points. NIFTY gained 245.15 points or 1.39 per cent to close at 17,916.80 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.60 per cent, 1.74 per cent and 1.91 per cent, respectively. BSEMIDCAP gained 2.83 per cent, while BSESMALLCAP fared even better gaining 3.28 per cent.

The Indian Rupee gained 42 paisa or 0.56 per cent to close at Rs 74.46 to the US Dollar. Dow Jones had a good week and posted new closing highs and intra-day highs. Dow Jones gained 509.39 points or 1.42 per cent to close at 36,327.95 points, a new lifetime closing high. During the day, it also posted a new intra-day high of 36,485 points.

There were plenty of news flow during the week as well. The Central government cut excise duty on petrol by Rs 5 per litre and Rs 10 per litre on diesel. Many BJP ruled states reduced local taxes on petrol and diesel as well while non-BJP states are mulling over the proposal. CAIT (Confederation of all India Traders) have estimated that their members have had sales of 1.25 lakh cr during the current festival season, indicating huge demand revival and confidence amongst consumers to spend.

Samvat 2077 saw the benchmark indices return gains of about 40 per cent on the BSESENSEX and NIFTY. These are the best returns in more than a decade. These gains are on the back of huge inflows from FPI's and domestic retail investors. While FPI's have been booking profits over the last month or so, cumulatively they have invested huge amount of money during the last 12 months. The AUM of mutual funds has risen by over Rs 9 lac crs in the month of September. The total AUM of the mutual fund industry is now 36.74 lakh cr as at the end of September 2021. This impressive increase is reflected in the huge increase in number of demat accounts over the last 12 months or post Covid-19. The number of demat accounts stands over 8 cr as of now.

In international news, the US FED has begun the taper and they would cut 15 billion in bonds every month. While this would reduce some liquidity into the system, it may not affect global markets in the immediate short term.

Primary markets were in the thick of action with five issues closing subscription in the three trading sessions that markets witnessed. The first of the lot was from the brand Nykaa, FSN E-commerce Ventures Limited which was subscribed 82.42 times overall. The QIB portion was subscribed 92.17 times, HNI portion was subscribed 112.51 times, Retail portion was subscribed 12.29 times and Employee portion was subscribed 1.88 times.

The second issue was from Fino Payments Bank Limited which was subscribed 2.03 times overall. QIB portion was subscribed 1.65 times, HNI portion was subscribed 0.21 times, Retail portion was subscribed 5.92 times and Employee portion was subscribed 0.93 times.

The third issue was from SJS Enterprises Limited which was subscribed 1.63 times overall. The QIB portion was subscribed 1.45 times, HNI portion was subscribed 2.36 times and Retail portion was subscribed 1.41 times.

The fourth issue was from PB Fintech, the holding company of Policy Bazaar. The issue was subscribed 17.86 times overall with QIB portion subscribed 27.52 times, HNI portion subscribed 8.15 times and Retail portion subscribed 3.45 times.

The fifth and final issue was from Sigachi Industries Limited. This issue was oversubscribed 101.91 times overall with QIB portion subscribed 86.51 times, HNI portion subscribed 172.43 times and Retail portion subscribed 80.49 times.

The largest issue to ever hit capital markets is opening on Monday and closing on Wednesday. The issue from One 97 Communications Limited, the owners of the super app Paytm hits the market with a fresh issue of Rs 8,300 cr and an offer for sale of Rs 10,000 cr. Currently, the company is loss making and hopes to turn the corner in the coming few quarters as it increases the number of transactions on its platform and simultaneously cuts down on the deep discounting and promotion expenses it incurs. The price band of the issue is Rs 2,080 to 2,150.

The second issue is from Sapphire Foods Limited which is tapping the capital markets with its offer for sale of 1,75,69,941 equity shares in a price band of Rs 1,120-1,180. The issue which opens on Tuesday the 9th of November would close on Thursday the 11th of November. The company is a franchisee of Yum's franchisee operator in India, Sri Lanka and Maldives. The company operates 220 KFC stores, 260 Pizza Hut stores and 2 Taco Bell restaurants in India. It reported revenues of Rs 1,019 crs for the year ended March 2021. It is currently a loss-making company and would need a couple of quarters before it becomes profitable at the net level. The other franchisee of Yum, Devyani International Limited, is also a listed company and has turned profitable in the last quarter ended September 2021.

Sapphire Foods Limited had in August 2021 done a preferential allotment of 93.73 lakh shares to its PE investors at a price of Rs 515 and Rs 555 which works out to a sharp discount to the asking price of Rs 1,180 at the top end of the price band. One wonders what has changed in less than 3 months, that the price should change by more than 2.3 times. Clearly this is the greed of both merchant bankers and PE investors. Further the fact that the share price of the other franchisee has increased sharply post reporting results which saw the company turning profitable, may be another driver. Readers should compare the two companies before taking a call on subscribing to the issue from Sapphire Foods Limited.

The third and final issue is from Latent View Limited which is tapping the markets with its fresh issue for Rs 474 cr and an offer for sale of Rs 126 cr in a price band of Rs 190-197. The issue opens on Wednesday and closes on Friday. The company is into the business of pure play data analytics and is one of the leading players in this business in the country. The company reported revenues of Rs 305.88 cr for the year ended March 2021 and a net profit of Rs 91.46 cr. The EPS for the year ended March 2021 was Rs 5.10 on a diluted basis. The PE at the price band is 37.25-38.63 times based on March 2021 diluted earnings per share.

There is surfeit of fresh paper in the markets and with markets remaining buoyant, valuations keep getting steeper and steeper with each round of fund raising. When the rubber band will snap is difficult to predict but the elasticity has been stretched to the fullest. Readers would be well advised to exercise caution when applying for primary issues as the pipeline is never ending. Even with the five that completed last week, and the three during the upcoming week, there are another dozen issues likely in the next three weeks if not more.

Coming to the markets in the week ahead, they would be choppy and volatile. While the dead cat bounce has come and gone, we are not yet out of the woods. With US markets on a roll, the downside in Indian markets may not come but with FPI's net sellers continuously it's a cause for worry. Secondly the surfeit of paper and almost Rs 35,000 cr being raised could be a cause for worry.

The strategy for the week ahead would continue to be to buy on dips and sell on rallies and there would be opportunities on both sides available. The breadth of the market which has expanded in the last couple of weeks with midcap and Smallcap stocks participating may again contract. Its time to buy stocks from only the large cap stocks as they have greater safety and comfort and are relatively more liquid. Trade cautiously as plenty of trading opportunities will arise as the week progresses.