Mkts may remain volatile, choppy

Week Ahead

• Ideal to book profits on all rallies
• Buying should only be done on large dips
• Focus should be on large-caps
• Targets would be 22,750 for Nifty and 75,600 for BSE Sensex

The period February 29- March 6 under review from saw markets make one big jump on Friday and then saw some profit taking and consolidation over the last couple of days. Wednesday saw markets trading in the red and then making a massive U-turn couple of hours before markets ended trading. There was an extra day of trading on the previous Saturday to test the disaster recovery site of the exchange. Markets gained on the first four days of the period and lost for one day before resuming their upward trend once again, BSE Sensex gained 1,846.47 points or 2.55 per cent to close at 74,085.90 points, while Nifty gained 546.10 points or 2.49 per cent to close at 22,474.05 points. New highs have been made on the BSE Sensex at 74,151.27 points and at 22,497.20 points on Nifty.

Incidentally the gains of Friday were a massive 1,245 points on BSE Sensex and at 356 points on Nifty.

February futures expired on a weaker note in the last week of the series. The series ended with gains of 630.20 points or 2.95 per cent to close at 21,987.38 points.

In economic news, FPIs bought shares worth Rs5,107 crore in February after being net sellers of over Rs25,000 crore in January. Further the GDP numbers for Q3 of FY23-24 came at an impressive 8.4 per cent. This was probably the reason why markets catapulted on Friday and virtually went into a new orbit.

There was a lot of activity in the primary markets in the week gone by. The week saw three listings, three IPOs open and one IPO close for subscription. The first share to list was GPT Healthcare Ltd, which had issued shares at Rs186. The share debuted on the bourses on Thursday (February 29). The discovered price was Rs216.15 and the share closed day one at Rs200.75, a gain of Rs14.75 or 7.93 per cent. Over the remainder of the period under review, the share lost ground and closed at Rs168.65, a loss of Rs17.35 or 9.32 per cent.

The second share to list was Exicom Tele-systems Ltd, which had issued shares at Rs142. The share debuted at Rs264, and closed on Tuesday at Rs225.65, a gain of Rs73.65 or 51.86 per cent. The share on Wednesday gained some ground and closed at Rs246.45, a gain of Rs104.45 or 73.55 per cent.

The third share to list was Platinum Industries Ltd, which had issued shares at Rs171. Shares debuted at Rs228 and closed day one at Rs220.90, a gain of Rs 49.90 or 29.18 per cent. On Wednesday, shares lost some ground to close at Rs210.15, a gain of Rs39.15 or 22.89 per cent.

The first IPO is from RK Swamy Ltd, which is tapping the markets with its fresh issue for Rs173 crore and an offer for sale of 87 lakh shares in a price band of Rs270-288. The issue opened on Monday (March 4) and would close on Wednesday (March 6). The company is into the business of integrated marketing communications which operates a full-scale advertising agency and market research business verticals.

The company has over five decades of presence. It reported revenues of Rs780 crore for the year ended March 23 on a gross basis and a net revenue of Rs300 crore. Its EBITDA margins were 20.97 per cent and PAT margin at 10.42 per cent. There is cyclicality in the business of the company and broadly speaking roughly 40 per cent of its revenues come in the first half and 60 per cent in the second half. Profitability is even more skewed and the company in my opinion earns about 25 per cent of profits in the first half and 75 per cent in the second half.

The company had an EPS of Rs7.03 for the year ended March 23 and based on this EPS, the PE multiple for the share is 38.41-40.96. The company has its niche and is one of the leading companies in the advertising space standing up against the MNCs and doing well. The market research gives it the cutting edge. One should invest in the company for medium to long term gains while making some listing pop could always happen. At the time of writing the article on the third afternoon, the issue is subscribed 25.61 times with QIB rush yet to happen.

The second share to tap the markets is J G Chemicals Limited. The issue has opened on Tuesday (March 5) and would close on Thursday (March 7). The price band is Rs210-221. The company is the largest producer of Zinc Oxide in the country. Its products are used in the tyre and rubber industry and JG Chemicals is a leading supplier to tyre manufacturers in the country and globally as well. The company has plants in Kolkata and in Naidupeta in Andhra Pradesh.

The company reported revenues of Rs795 crore for the year ended March 23. Its EPS was Rs17.32 and the resultant PE for the issue is 12.12-12.76. While there are listed players in the segment, they are smaller compared to the company. The company offers appreciation for investors looking to invest with a medium-term outlook as the company has diversified and added products in the pharmaceutical and agricultural space as well. At the time of writing this article the issue is subscribed 5.86 times.

The third company tapping the capital markets with its offer for sale is Gopal Snacks Ltd. The issue opened on Wednesday (March 6) and would close on Monday (March 11). The price band of the issue is Rs381-401. The company is a manufacturer and marketer of ethnic Indian snacks, gathiya and western snacks. The company is located in Rajkot with two plants in Rajkot and near Ahmedabad, and one plant in Nagpur. The company reported revenues of Rs1,394 crore for the year ended March 23, an EBITDA margin of 14.07 per cent and a PAT margin of 8.06 per cent. The profit after tax was Rs112 crore. The EPS for the year ended March 23 was Rs9.03 and the PE multiple at 42.24-44.46. The company compares favourably with its listed peers like Pratap Snacks and Bikaji Foods.

The company is present in ten states and two Union Territories with Gujarat being the largest state in terms of sales. It has 617 distributors as of date and is looking to expand its footprint. The sales distribution in terms of products having a MRP of Rs5 is 75 per cent, while that of Rs10 is 8.23 per cent. This gives the company an edge that the number of people who buy their products repeatedly is very high. A price point of Rs5 ensures a decent snack for the customer of hygienic food which is properly packed and served in a safe and hygienic condition. The share offers appreciation in the short and medium term and could also give a listing pop for the flippers.

The March 7-13 period ahead has a trading holiday on Friday (March 8). This would lead to people lightening their position ahead of the holiday which is only India centric. Markets will continue to remain volatile and choppy and as is being witnessed in the markets, the mid-cap and Small-cap would be under pressure. I have been saying for over 5-6 weeks that safety lies in the large-cap segment and profits must be booked in the small and midcap space.

The strategy for the period ahead would remain the same where profits must be booked on all rallies and buying should only be done on large dips. The focus should be on the large cap space for buying and one has to be greedy while choosing what to buy. Targets would be about 22,750 on Nifty and 75,600 on BSE Sensex. These are levels, which become targets for the indices to reach after they have made new highs. Suffice to say that they are not targets for the period ahead but short to medium term targets. Markets have support at levels of 21,900 on Nifty and at 72,100 on BSE Sensex. This becomes the operating range for the markets. Trade cautiously.

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