Correction likely sooner than later
Trade cautiously, limit overnight exposure; It could be short lived as momentum and money flow make it difficult for markets to remain down and out
The present state of the markets one can see that volumes have reduced significantly over time particularly the beginning of the month. This has also brought about a sharp drop in intra-day volatility as well. FPIs with the sustained upward movement in the markets
The June 13-19 period under review was one, which could be termed as circumspect. The domestic stock markets gained on the first three days of the period and on the fifth and final day were locked in a fight between the bulls and bears. After moving between positive and negative territory, markets closed mixed with BSE Sensex positive and Nifty negative. At the end of the period, BSE Sensex gained on four sessions and lost on none, while Nifty gained on three and lost on one with Monday being a trading holiday. BSE Sensex gained 731.02 points or 0.95 per cent to close at 77,337.59 points while Nifty gained 193.40 points or 0.83 per cent to close at 23,516 points. In terms of sectors, it was Bank Nifty day and it rose sharply on a day when weekly futures expired on that day. Very clearly it was to trap short sellers. Dow Jones seems to have gone into a shell and was literally range bound. It gained on two of the five sessions and lost on three. At the end of the period, Dow was up 86.94 points or 0.22 per cent at 38,834.36 points.
Coming to primary markets, we had the issue from Le Travenues Technology Ltd, which listed on Tuesday (June 18). The company had a stellar debut and in just two days had doubled. The shares were issued at Rs93 and closed at Rs185.25, a gain of Rs92.25 or 99.19 per cent.
There are two issues which have opened on Wednesday. They will close on Friday (June 21). The first issue is from DEE Development Engineers Ltd, which is tapping the capital markets with its fresh issue of Rs325 crores and an offer for sale of 45.82 lakh shares in a price band of Rs193-203. The company is into the business of piping solutions for the oil and gas sector, chemical sector and super critical and power sector. It also makes structural towers for the wind energy space. It began operations in Haryana and has now expanded operations into Kutch at Gujarat.
This place is strategically located with two ports Kandla and Mundra in the vicinity, customers for wind energy having their sites in the vicinity and major steel suppliers being in a 25-kilometer radius. The location helps in reducing costs on account of inward transportation significantly. The expansion happening at Kutch will take about 6-8 months to fructify. I believe the company has a great future and would do well post the commissioning of the new plant. The numbers of the company would reflect improved scale and efficiency for the year ended March 26. Only, if you have an investment horizon of 12-18 months or more should you invest now. There may always be listing gains looking at the market mood, but otherwise investment is for the medium to long term.
The second issue is from a NBFC based out of Rajasthan, AkmeFintrade (India) Limited. The company is raising through a fresh issue of 1.1 crore shares in a price band of Rs114-120. The issue opens on Wednesday (June 19) and closes on Friday (June 21). The NBFC space is crowded and recent issues in this space have not done well. The company and its merchant banker have chosen not to have a roadshow in Mumbai for this issue. Speaks volumes for their confidence in marketing the issue. One wishes them luck.
The third issue is from Stanley Lifestyles Ltd, which is tapping the capital markets with its fresh issue of Rs200 crore and an offer for sale of 91,33,454 shares in a price band of Rs351-369. The issue opens on Friday (June 21) and closes on Tuesday (June 25). The company is a bespoke manufacturer of super-premium and luxury furniture brands in India. It’s a home-grown brand and a little over half its revenues comes from sofas and recliners.
The company crafts its products as per the requirement of its customers and everything’s made to order. The business has been growing and with funds being raised to open more stores, benefits of the same would be available as time passes. The company is into a niche segment where luxury defines markets. Take a measured call as growth in revenues will not be a factor of perpendicular growth. The common factor in these three issues is the grey market premium, which has caught fancy and is in the region of 30 per cent to 50 per cent of the issue price.
The present state of the markets one can see that volumes have reduced significantly over time particularly the beginning of the month. This has also brought about a sharp drop in intra-day volatility as well. FPIs with the sustained upward movement in the markets have been forced to cover their shorts and they have done so over time in terms of buying and selling. They have sold and bought on a net basis five times each in the month of June, significantly better than what they did in May. The momentum is with the bulls and they seem to be having it their way as of now. How long this would last is anybody’s guess.
There are many moving parts to the market puzzle currently. The first is the valuation front where we are no longer cheap. Against this argument the money flow is like an overflowing dam which makes all rational thinking useless. One hopes that the quarter results for April to June, give some reason to cheer on the growth and profitability front. The second issue is the budget front and what this government would do. The difference between Modi 1.0 and Modi 2.0 are different from Modi 3.0 simply because this is a coalition government. History says that coalition governments have delivered far more than majority governments. The budget in about a month’s time would be a fair indicator of
the same. Coming to the markets in the June 20-26 period, one should expect a correction sooner than later. It could be short lived as momentum and money flow make it difficult for markets to remain down and out. Trade cautiously and limit overnight exposure. It’s a traders market even now.
(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)
