Benchmark indices set for new levels

The June 1-7 period under review saw the markets make a valiant attempt to make a new lifetime high, but it failed. Notwithstanding, the momentum remained intact and efforts to continue to make the mark is work in progress. The benchmark indices gained on three of the five trading sessions, losing on one and remaining flat on the fifth session. BSE Sensex gained 520.72 points or 0.83 per cent to close at 63,142.96 points, while NSE Nifty gained 192.00 points or 1.04 per cent to close at 18,726.40 points. FPIs are supporting the market up move and there is action, volatility and demand for shares.

Dow Jones gained on three of the five sessions and job data on Friday was very encouraging. Markets gained very sharply on Friday and Dow was up 701 points. The period ended with Dow gaining 517.77 points or 1.57 per cent to close at 33,573.28 points.

RBI’s bi-monthly MPC meeting during June 6-8 was to review interest rates. Looking at economic data on GDP and inflation, it is widely believed that interest rates would remain at status quo. Confirmation of the same would result in markets saluting the event and post the outcome one could see the bulls stepping on the accelerator.

After a fairly long lull in the primary markets, we have an issue opening next week. Ikio Lighting Ltd is tapping the capital markets with its fresh issue for Rs350 crore and an offer for sale of 90 lakh equity shares in a price band of Rs270-285. The issue already opened on this Tuesday and it will be closing on Thursday (June 8). The company had prior to the IPO reorganised its business and acquired group companies and merged all of them under one roof through subsidiaries. The company’s primary business is manufacturing LED lighting solutions and it focuses on providing low energy LED products to help India meet its sustainability goals. The company is an ODM player and supplies to large players, who then distribute the products under their brand name. The largest customer for Ikio is Signify Innovations India Ltd, erstwhile Philips Electronics India Ltd.

The company has its manufacturing plants in Haridwar and Noida and is further expanding in these regions. On a restated pro forma consolidated basis, the company reported revenues of Rs333.99 crore for the year ended March 2022. Its profit after tax was Rs50.51 crore and the EPS was Rs7.77. For the nine months ended December 2022, revenues increased to Rs332.79 crore and profit after tax was Rs51.43 crore. The EPS was Rs7.90 on a non-annualised basis.

The objects of the issue are debt repayment of Rs50 crore and investment in the company’s subsidiary of Rs262.87 crore. Based on the restated proforma consolidated basis, the PE price band is Rs34.75-36.68 based on the year ended March 22.

Looking at the nature of the business, it is highly competitive and has a pricing overhang as it supplies to a dominant OEM player. Going forward, the margins could be under pressure, as the company looks to scale up with substantial investment in new capacities. At the time of writing this article close to the end of the second day of subscription, the issue was subscribed around 5.65 times with 6.35 lakh applications. Readers could apply for listing pop and sell on listing as there is a healthy grey market existing.

In the week ahead, the first resistance would be the all-time highs made on December 1, 2022. The previous week’s top, which are at levels of 63,036.12 points and at 18,662.45 points were breached during trading on Wednesday. The intraday highs made on Wednesday were at 63,196.43 points and at 18,738.95 points.

The next target is the all-time highs at 63,583.07 and 18,887.60 points. These levels are just a day away and may happen anytime soon now. Greater possibility for touching those all-time highs is on Thursday, when RBI meets or any other day. With sustained buying by FPIs which was a massive Rs43,838 crore in May month, the new high should happen. Assuming the levels on the upside are breached, we could easily see a 3 per cent jump which would translate into roughly 1,900 points on BSE Sensex and 560 points on Nifty. This would be a swift move and would be volatile.

On the support side, markets have strong support at 18,300-18,350 levels on Nifty and at 62,025-62,175 levels on BSE Sensex. If these are violated, the next levels would be at 18,000-18,050 or 61,150-61,300 levels.

The strategy for the period ahead would be to ride the momentum and at the first indication of euphoria, cash out on the markets. Tops are usually made amid huge volumes and very high volatility. This could happen this weekend or early next week.

Tops likely at weekend or early next week

• Current RBI’s MPC meet decision to maintain status quo on interest rates could see bulls stepping on accelerator

• FPIs may clock new high should happen with sustained buying

• Ikio ltd is tapping capital mkts, after a fairly long lull in primary mkts

• Huge volumes of trade made amid very high volatility could be a focus factor

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