Choppy, Volatile Trading Likely This Week

The January 23-29 period was volatile and during the course of the same we also saw amarket meltdown when the benchmark indices fell by one per cent, but the small-cap and mid-cap indices fell between three and five times more. Over the last two days we are seeing a strong recovery which is beingascribed by different names depending on the exposure that the individual has.

BSE Sensex gained 127.97 points or 0.17 per cent to close at 76,532.96 points, while NSE Nifty gained 7.75 points or 0.03 per cent to closeat 23,163.10 points. During the period markets gained on three of the five trading sessions and lost on two. Dow Jones gained on four of the five trading sessions and lost on one. It gained 824.54 points or1.87 per cent to close at 44,850.35 points.

Over the next seven days or so we have a series of events national and international, which will have a bearing on the markets happening. First off would be the US Fed meeting which would take placetonight (Wednesday night). It is widely expected that there would be no rate cut at this meeting. This would be followed by January futures expiring on Thursday (January 30). At the current level of 23,163.10 points, the series is down by 564.55 points or 2.37 per cent. With just one day to go,there is no way that the bulls can plough back or make any meaningful headway.

Over and above, the markets have seen a sharp recovery over the last two days and there is a major event due in the US tonight which could cause movements in the market. Further on, the Union budget is to be presented on Saturday (February 1). Not too many clueswhat the budget would hold as yet. However, the buzz all over is that there could be some changes in personal income tax, which would ensure that there is more disposable income in the hands of the people who form the bulk of the tax paying population of this country. If this happens this could lead to consumption led demand going up and that would help in the economy which seems to bestalling. Any other goodies if announced could be treated as bonuses.

Besides the budget, FPIs continue to be on a sell mode and have sold on every single day in Januaryexcept one day. While the single day sale ranges between Rs3,000-5,000 crore, it cumulatively becomes a big number. In primary market news, shares of Denta Water and Infra Solutions Limited listed on Wednesday (January 29). Shares were issued at Rs294 and debuted at Rs330 on BSE, a gain of Rs36 or12.24 per cent. They hit the upper circuit thereafter and closed at Rs346.45, a gain of Rs52.45 or 17.84 per cent.

There is one issue opening in the period ahead. The issue from Dr Agarwal’s Healthcare Limited hasopened on Wednesday (January 29) and would close on Friday (January 31). The issue consists of a fresh issue of Rs300 crore and an offer for sale of 6,78,42,284 shares in a price band of Rs382-402. The issue would raise a total sum of Rs3,027.26 crore at the top end of the price band.

The company as the name suggests is a super specialty in eye care and offers state of the artfacilities in India and Africa. It has 28 hubs and 265 spokes with a revenue break up of 45.42 per cent and 54.35 per cent between hub and spoke. The hospital chain has 193 facilities in India of which 120 are in the states of Tamil Nadu, Maharashtra and Karnataka. The company has 15 facilities in Africa. Of the total facilities, more than half are emerging at 113, while 95 are mature. They are defined as less than three years as emerging and mature as more than three years.

In terms of performance, the company reported revenues of Rs1,332.15 crore for the year ended March 24. The restated profit after tax was Rs95.05 crore. The EPS on a fully diluted basis was Rs3.13. The PE band is a steep 122.04-128.43 times. Expensive by all standards, but the selling point is the mix of emerging and mature outlets/ facilities that the company has. Secondly eye care is something that is imminent with age. The target opportunity is the population. In terms of comparison while there are no listed peers, all the hospital chains are comparable. The biggest difference is the fact that hospitals have beds, while eye care is all OPD (out-patient department). This reduces capex cost and leads to a significant higher patient throughput. Equipment is the biggest investment in this business.

At almost the end of the first day, the issue was subscribed 0.07 times with QIB portion subscribed 0.00 times, HNI portion subscribed 0.05 times and Retail portion subscribed 0.11 times. In terms ofnegative for the issue, the fact that 90 per cent of the issue amount being raised would be taken away bypromoters and PE investors is a big negative from the market perspective. Secondly the PE band andthe overall valuations are something which is not being liked by the markets at all. The premiumwhich had gone up to about 40 per cent has since crashed and is now next to nothing, which is yet anothercause for concern.In conclusion, readers may decide to skip the issue at the subscription level and take a call on listingor even later, as to what they wish to do in the share.

Coming to the January 30-February 5 period ahead, the market would continue to be choppy and volatile. More so because we have events lined up. Fed meeting, January futures expiry, PresidentTrump to announce by 1stof February tariffs on China, Mexico and Canada amongst other countries,Union Budget on 1stFebruary and finally RBI credit policy meeting between the 5thto 7thFebruary.Each of these events has the potential to shake the markets significantly in either direction. Howmuch and in what direction is a million-dollar question.

What should be the strategy?

Currently what we are seeing is a recovery whether one calls it a reliefrally or by any other name. The strength would be acknowledged only after Nifty crosses and maintains above 23,450-23,500 points. Until then, we are not out of the woods. On the lower side, we made new lows on Monday at levels of 75,267.59 points and 22,706.90 points respectively. Trade extremely cautiously over the next seven days.

Let the events be digested by the market. Stick to large-cap stocks as safety lies there. These become significant going forward. Going forward, markets falling below 22,800 points would signal sharp weakness and we would witness yet another fall like we saw on Monday. Midcap andSmall cap is still the area of stress and would continue to underperform the large cap. While the situation on Wednesday was different, it should be treated as an aberration. In conclusion, on the lower side we made new lows on Monday at levels of 75,267.59 points and 22,706.90 points respectively. Trade extremely cautiously over the next seven days. Let the events be digested by the market. Stick to large cap as safety lies there.

(The author is the founder of Kejriwal Research and Investment Services,

an advisory firm)