Markets to remain in a trading zone

The domestic markets during the period December 16-22 under review were volatile to say the least. Markets moved all over the place and despite of the fact that the last two days saw strong recoveries, markets still ended with net losses. BSE Sensex lost 857.47 points or 1.51 per cent to close at 56,930.56 points, while Nifty lost 265.95 points or 1.57 per cent to close at 16,955.45 points. The recovery over the last two days has seen gains of about 1,100 points on BSE Sensex and 340 points on Nifty.

Dow Jones has also been showing extreme volatility. While it gained 560 points on Tuesday, it is still negative on a five-day format. It had lost almost 1,000 points in three days prior to that. With this kind of movement, predicting the future is dicey and that much tougher.

The three big reasons for the negativity in the markets are primarily the fact that FIIs continue to be sellers and one is not sure whether they would stop at the end of the year or not. While it would be logical for that to happen, one gets a little more cautious when on the wrong side of things. The second reason has been the surge in patients being detected with the new variant Omicron. While the jury on the variant is not yet out, the fact that it has been spreading is correct and there are no reports as yet to suggest that the vaccines available as of now are equally effective or not. It makes imminent sense for each person to take adequate provisions of social distancing so that one is exposed to the bare minimum. Finally, the taper in the US has begun. Easy money would get tougher going forward.

Primary markets seem to be coming to the end of their present run with just one issue as of date being open. There is one IPO from CMS Info Systems Limited which has opened and would close on Thursday. At the end of day two, the issue is subscribed 0.69 times with retail portion subscribed 1.37 times. The size of the issue which is entirely an offer for sale is Rs 1,100 crores. The price band is Rs 205-216. The issue had opened on Tuesday (December 21) and closes on Thursday (December 23). The company is into the business of cash management and roughly 2/3rd of its revenues come from cash management services. The company had reported a net profit of Rs169 crores on revenues of Rs1,306 crores for the year ended March 2021. The fully diluted EPS for the same period is Rs11.09. The PE for the stock is 18.49-19.48 times. Valuations look decent and should offer appreciation for investors investing with a medium-term outlook. Readers should keep in mind that since filing the IPO in July-August, the size of issue and the price band have been reduced. This effectively means that the selling shareholder wants to go ahead and allow incoming shareholders make some money, something largely not witnessed in the entire year of calendar 2021.

Three listings have taken place with Shriram Properties listing on Monday. Shares which were allotted at Rs118, debuted at Rs90 and closed at Rs99.40, a loss of Rs18.60 or 15.76 per cent. This was undoubtedly a below expectation listing which has cost investors dearly.

The second listing was from Map My India which listed on Tuesday and had issued shares at Rs1,033. The company saw shares list at Rs1,581 on BSE, a gain of Rs548 or 53.05 per cent. Shares closed the day at Rs1,394.55, a gain of Rs361.55 or 35 per cent. This gain was substantially lower than the cost of funding of the leveraged HNI and therefore ensured that leveraged investors lost money.

The third listing was from Metro brands Limited which was priced at Rs 500. The discovery price was Rs 436 on BSE, a loss of Rs 64 or 12.8 per cent. The fate of IPO's these days reflects the overpricing and rampant greed being exercised by promoters and private equity players. In league with merchant bankers, they have just one communication that the price has been derived after extensive feedback from institutional investors, and the joke is, that this narrative remains the same even after an issue bombs.

One hopes that when the new IPO season begins, pricing is more rational. Coming to the markets in what would be almost the last trading week for calendar 2021, expect markets to remain volatile. The direction and velocity are likely to reduce as selling should taper in the coming days. While this would result in markets gaining ground or not will continue to be a million-dollar question. From current indications it appears that markets would remain in a trading zone with both directional movements which would be sharp. December futures would be expiring on Thursday (December 30). Trade cautiously and avoid temptation to keep overnight positions.

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