Markets may remain choppy, volatile

The August 31-September 6 period under review saw markets gain, but the movement was choppy and volatile. More importantly we had visible sector rotation and the mid-cap and small-cap space clearly outperforming the large-cap stocks. This gives a feeling that one needs to be cautious and have a better hold on resources. BSE Sensex gained on four of the five trading sessions and lost on one. BSE Sensex gained 793.27 points or 1.22 per cent to close at 65,880.52 points, while Nifty gained 263.60 points or 1.36 per cent to close at 19,611.05 points.

Dow Jones too had a choppy and volatile period. It gained on two of the four sessions and lost on two. At the end of the period, Dow was down 210.70 points or 0.60 per cent to close at 34,641.97 points.

August futures expired on a weak note. The series lost 406.10 points or 2.07 per cent to close at 19,253.80 points. In primary markets there was a lot of activity. There were two listings which happened. The first share to list was Aeroflex Industries Ltd, which had issued shares at Rs108. The share listed on Thursday (August 31) at Rs197.40 which was the high as well. The share lost ground to 165.25, a gain of Rs57.25 or 53 per cent. By the end of the period under review, the share lost further ground to close at Rs159.10.

The second share to list was Vishnu Prakash R Punglia, which had issued shares at Rs99, listed on the bourses on Tuesday (September 5). The discovered price and the high of the day were Rs165. The share was under pressure thereafter and fell sharply, closing at Rs145.93, a gain of Rs46.93 or 47.4 per cent. On Wednesday, the share saw an amazing recovery and closed at Rs163.50, recovering Rs17.57.

The four recent main board IPOs have shown a disturbing trend till today. The high of the day is made on listing day at or around the discovered price. Thereafter the price falls and fails to recover even after a week or longer since the issue is listed. Recent examples show that Pyramid Technoplast Ltd had issued shares at Rs166. The listing day high was Rs188 and the closing price today was Rs171. Similarly, Aeroflex Industries Ltd has issued shares at Rs108. Listing day high was Rs197 and the closing price today was Rs159.10. The third issue in this category was TVS Supply Chain Solutions Limited which had issued shares at Rs197. Listing day price was Rs207 and today’s closing price was Rs201.05.

The final issue which listed yesterday was Vishnu Prakash R Punglia. This share has set a new record where it has crossed listing day high and also closed higher than the listing day. Hope this is a new trend and the same would be most welcome and appreciated by market players as investors. Otherwise, the feeling was that market players are using the ‘pump and dump’ theory to con investors.

Like the secondary markets where mid-cap and small-cap stocks are moving differently as compared to large-caps and giving a feeling that they are from different planets, the primary markets too, seem no different. Subscription in the SME category too is of a bizarre level. Just the other day an SME issue garnered subscription of Rs14,14,169 crore and was oversubscribed 286 times. The greed and euphoria being witnessed is a cause for concern.

The issue from Rishabh Instruments Ltd was open from Wednesday (August 30) to Friday (September 1). The issue was subscribed 31.65 times overall with the QIB portion subscribed 72.54 times. HNI portion subscribed 31.29 times and Retail portion subscribed 8.43 times. There were 8.65 lakh applications for the issue.

The period ahead sees the issue from Jupiter Hospital Limited tap the capital markets. The issue consists of a fresh issue of Rs542 crore and an offer for sale of 44.50 lakh shares in a price band of Rs695-735. The company currently runs three hospitals in Thane, Pune and Indore which have 1,195 beds in total. The company proposes to set up a new 500 bed hospital in Dombivli in the coming two years. The EPS of the company on a fully diluted basis is Rs12.95 and the PE band of the issue is

53.67-56.76.

Prima facie the PE multiple looks expensive, but looking at the way that euphoria seems to have engulfed capital markets and particularly primary markets, this issue too would be a runaway success. Investment could be made for listing gains and then looked at post listing for a medium-term investment duration. The issue opened on Wednesday (September 6) and would close on Friday (September 8). The September 7-13 period would see markets remain choppy and volatile. As per the present trend, different sectors and different stocks in the sector would move. The same set of stocks would not be in favour for more than 2-4 days. Today one saw some of the paper company stocks and sugar shares remain active. They were helped by some pharma stocks as well. This kind of movement would continue.

The strategy for the period ahead would be to book profits on every rise and refrain from shorting the markets. While the two heavyweight stocks, Reliance and HDFC Bank remain insulated from the current rally in the markets, their movement is imminent in case we need to make an attempt to mount 20K on Nifty. Currently the momentum is not in their favour and hence it needs to be seen when the markets make the final assault.

In conclusion, remain cautious and use opportunities to build some cash reserves.

(The author is the founder of Kejriwal Research and

Investment Services,

an advisory firm)