Choppy, volatile week ahead in Indian stock markets

The June 27-July 3 period saw markets extend their strong showing as key indices gained on three of the five sessions and lost on two. BSE Sensex gained 1,312.60 points or 1.67 per cent to close at 79,986.80 points, while Nifty gained 417.70 points or 1.75 per cent to close at 24,286.50 points. Markets have been creating new highs regularly and today was no exception. The new highs made today were at 80,074.30 points on BSE Sensex and at 24,307.25 points on Nifty.

Dow Jones gained on four of the five trading sessions and lost on one. The gains were small as on a couple of days though the markets gained it was largely flat. Dow Jones gained 219.69 points or 0.56 per cent to close at 39,112.16 points. Markets were under pressure on Tuesday and Wednesday’s sharp turnaround could be attributed to one stock namely HDFC Bank. The fact that the FPIs holding has dropped below 55 per cent opened the window to buy shares by FPIs. The share gained Rs37.80 or 2.18 per cent on Wednesday to close at Rs1,768.35. The BSE Sensex gained 545.35 points of which HDFC Bank’s contribution was 249 points or 45.7 per cent. It changed the sentiment and also made other banks join the party with ICICI Bank, Axis Bank and Kotak Bank making contributions as well.

The week saw three listings and two IPOs, which opened on Wednesday (July3). The first share to list was Stanley Lifestyles Limited. Shares were listed on Friday (June 28). The company had issued shares at Rs369 and listing happened at Rs499. The share closed day one at Rs474, a gain of Rs105 or 28.46 per cent. Over the remaining part of the week, the share gained and closed at Rs497.30, a gain of Rs128.30 or 34.76 per cent.

The second share to list was Allied Blenders and Distillers Ltd, which had issued shares at Rs281. The share listed on Tuesday (July 2) at Rs317.85, a gain of Rs36.85 or 13.11 per cent. On Wednesday, the share gained further ground and closed at Rs335.05, a gain of Rs54.05 or 19.23 per cent.

The third share to list was Vraj Iron and Steel Limited. This share listed on Wednesday the 3rd of July and the company had issued shares at Rs207. The discovered price was Rs240 and the closing price was Rs251.95, a gain of Rs44.95 or 21.71 per cent.

The first issue to tap the capital markets is Emcure Pharmaceuticals Limited, which opened on Wednesday (July 3) and would close on Friday (July 5). The issue consists of a fresh issue of Rs800 crores and an offer for sale of 1,14,28,839 equity shares in a price band of Rs960-Rs1,008. The company as the name suggests is into manufacturing, marketing and drug discovery. It sells in India and globally. It had some issues in the US and had as a prudent measure demerged the US Subsidiary to safeguard the parent from litigations which may arise.

The PE band is at 34.86-36.60 based on annual results for the year ended March 24. The company had reported revenues of Rs6,715.12 crore and a net profit of Rs527.57 crore. The EPS for the company was Rs27.54. The company had a flattish year compared to March 23 as sales grew from Rs6,031 crore, while net profit for the previous year was higher at Rs548 crore. The EPS for March 23 was Rs29.42. The PE multiple is on comparable levels with its peer set. Investment may be made in the share for the medium term.At around the close of Day1 of subscription, the issue is subscribed 1.24 times overall.

The second share to tap the capital markets is Bansal Wire Industries Ltd, which is tapping the capital markets with its fresh issue to raise Rs745 crore in a price band of Rs243-256. The issue opens on Wednesday (July 3) and closes on Friday (July 5). The company is a manufacturer of mild steel high carbon, mild steel and stainless-steel wires. It has a capacity of approximately 3 lakh tons and is setting up a new plant with a total capacity of 3.5 lakh tons. The new plant will have within it multiple facilities and has partially been commissioned and would be fully ready in a phased manner over the next 6-8 months. Suffice to say that with the plant coming on stream in a phased manner, the run rate of production in the next three quarters would have risen to a near optimum even though cumulatively for the year it would be lower.

The company reported total revenues of Rs2,470 crore and a net profit of Rs78.79 crore. This translated into an EPS of Rs6.18 for the full year and a PE multiple of 39.32-41.42. There would be significant improvement on these numbers as the new capacities ramp up as there are economies of scale, better and modern machines with larger capacities and a mix of value-added products. All of this would help in increasing margins at all levels whether it be gross, EBITDA or net. Investment in the issue should be for a medium to long-term looking at the prospects. One can also look at a short-term punt with listing day objectives.At around the close of Day-1 of subscription, the issue is subscribed 1.78 times overall.

The budget is less than three weeks away and would be announced in the week beginning from July 22. The same week would also see July futures expire on Thursday (July 25). With markets choppy and volatile, the budget week would be extremely volatile and choppy and one should take cognizance of the same and be prepared in advance.

Coming to markets in the July 4-10 period, expect markets to remain choppy and volatile. While markets are looking stretched and desperately need some correction, something seems missing and the inevitable correction is alluding to the market. Will the period ahead bring the same? Your guess is as good as mine. However, a reasonable correction before the budget would be healthy for the markets for sure.

The strategy for the period ahead would be to take some money off the table and await some opportunity as it unfolds. A correction sooner than later is what we should be looking at. Safety lies in large-cap stocks and it would be a good idea to move away from momentum stocks. Results would begin to unfold for the April-June quarter and early bird results from IT companies would set the trend. TCS has already announced that it would declare results on Thursday (July 11).Trade cautiously.

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