Bears could regain some ground

Key Factors:

• C- Q1 results season to begin
• Expectations of growth
• Pickup in rural demand
• IT sector may see a turnaround this time

The June 20-26 period under review was circumspect for the first three trading sessions with markets making very small moves with two days of gains and one day of loss. Tuesday was a day when markets made big gains and changed the complexion completely. It also ended up with markets making fresh highs on the BSE Sensex and Nifty. Wednesday was the eve of expiry of June series and saw markets posting big gains once again. This has set up expiry very well and also scope for some serious profit taking tomorrow. At the end of the day, when markets gained on four of the five sessions and lost on one sessions, BSE Sensex was up 1,336.61 points or 1.73 per cent to close at 78,674.20 points. Nifty gained 352.80 points or 1.50 per cent to close at 23,868.80 points.

Dow Jones gained on three of the four sessions and lost on one session. Dow Jones was up 277.80 points or 0.72 per cent to close at 39,112.16 points. The period under review saw two listings on Wednesday. The period also saw one issue close for subscription and two other issues which opened for subscription.

The first issue to list on Wednesday was from Dee Development Engineers Ltd, which had issued shares in a price band of Rs193-203 and had received excellent response and was oversubscribed 102.32 times. Shares debuted at Rs339 and closed at Rs335.32, a gain of Rs132.32.

The second share to list on Wednesday was Akme Fintrade (India) Ltd, which had issued shares in a price band of Rs114-120. The issue was subscribed overall 54.24 times and had issued shares at Rs120. The share debuted at Rs127, made a high at Rs133.35 and closed there. The share gained Rs13.45.

The issue from Stanley Lifestyles, which had opened on Friday and closed on Tuesday was very well received. The issue was subscribed 215.62 times in the QIB segment, 121.17 times in the HNI segment and 18.73 times in the retail segment. There were 21.26 lakh applications. The price band was Rs351-369.

The week ahead sees the issue from Allied Blenders and Distillers Ltd opened on Tuesday (June 25) and close on Thursday (June 27). The issue consists of a fresh issue of Rs1,000 crore and an offer for sale of Rs500 crore in a price band of Rs267-281. The company has a distillery in the state of Telangana and 32 bottling plants across the country. Its brand ‘Officers Choice’ has been the world’s largest selling whisky by volume during 2016-2019.

The company has been under stress and is raising money through the IPO to retire debt to the extent of Rs720 crore. Further, prior to going public, the promoter has rationalized the board and separated ownership and management. The new board is entirely professional and would entail a saving of Rs93 crore in terms of compensation to promoters going forward. The repayment of interest and this compensation would entail a total saving of over Rs200 crore in the financial year ending March 25. This would change the financials of the company which has just about been positive. Considering the infrastructure, prospects post rationalization and improvement in margins, it appears an investment which is warranted considering rising demand, socio-economic acceptance of liquor and growing aspirations. At the end of the second day, the issue was subscribed overall 1.36 times.

The second issue is from Vraj Iron and Steel Ltd, which is tapping the capital markets with its fresh issue of Rs171 crore in a price band of Rs195-207. The issue opens on Wednesday (June 26) and closes on Friday (June 28).

The company manufactures MS Billets and TMT bars and uses the sponge iron route for doing so. It is located in Chhattisgarh and has its plants at Raipur and Bilaspur. To better use the flue gas, it has a waste recovery plant and generates power which helps in reduction of cost. The object of the issue is to raise money for expansion of sponge iron capacity and MS Billets at Bilaspur and repayment of loan taken from bank for funding this project in the interim.

The issue is attractively priced and offers scope for appreciation in the medium term. There could also be listing gains looking at the market mood. At the end of the first day, the issue was subscribed 3.07 times overall.

Coming to the June 27-July 3 period ahead, we would have June futures expire on Thursday (June 27). The current value of June series at 23,721.30 points is 1,380.15 points or 6.14 per cent higher than the start of the series. The bulls can’t lose much with just one day to go. At best for the bears, they could regain some ground, but this is a series that the bulls have won convincingly. It must be remembered that we have the sharp volatility post exit polls and then the setback that the ruling party had when results were declared. However, at the end of it all, government formation has been completed without much action and the setting for the budget in less than three weeks’ time is on.

We will be entering the results season for the first quarter of 2024-25 financial year. Expectations of growth and pickup in rural demand will be key factors. Further whether the IT sector will see a turnaround this time or not would be another key factor. As far as the strategy for the period is concerned, it’s time to take some money off the table and wait for some meaningful correction to take place. Post budget maybe a much better time to reinvest as the governments focus would become much clearer. One disturbing scene at end of the day was the advance decline line being negative. This is concerning at the sharp gains registered, Maybe on Thursday could be a bad dy. Trade cautiously.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)