Volatility may continue further

The May 2-8 period under review was choppy, volatile and topsy-turvy. What we saw on last Friday (May 3) shook the markets to its very core. Prior to Wednesday’s trail of 1,082.78 points or 1.45 per cent to close at 73,400, markets had gained and lost on two trading sessions each. On Wednesday, we saw markets opening weak and the recovering all the losses and trading positive. At close of the day, markets ended with neither the bulls or the bears winning, flat. BSE Sensex lost 1,016.39 points or 1.36 per cent to close at 73,466.39 points, while Nifty lost 302.35 points or 1.34 per cent to close at 22,302.50 points. A fortnight ago, India VIX, which measures the volatility index in the markets had hit a new 15 month low. It seemed quite strange and one wondered how far from reality markets were trading considering the present geo-political state and the facts that general elections are currently on. Things have reversed in a U-turn and on Tuesday the same India VIX hit a new 15 month high. This is more like it and the impact is being seen in markets.

Dow Jones with interest rates being kept unchanged by the US Fed, have rallied and after a very long time, gained on all five trading sessions. Dow Jones gained 1,068.34 points or 2.83 per cent to close at 38,884.26 points.

Let us look at what happened on Friday (May 3) during trading. Nifty made a new lifetime high yet again at 22,794 points against the previous day’s close of 22,648 points. It fell very sharply to close at 22,475 points, a loss of 319 points from the high and 173 points from the previous day’s close. BSE Sensex made a high at 75,095 points against the previous day’s close of 74,611 points. From there it fell very sharply to lose 1,217 points from the high and 610 points from the previous day’s close. Indeed very volatile and a bit scary. This is the new volatility that markets is being subject to where FPIs are net sellers and domestic institutions continue to be net buyers on the back of SIP and domestic inflows.

The period under review saw the IPO from Indegene receive excellent response and set a new record. For the first time one has seen an issue receive one lakh plus applications in the ultra-HNI category of Rs10 lakhs and over. The issue with the last hour of bidding left was oversubscribed 701. Times overall with QIB subscribed 192.72 times, HNI portion subscribed 55.68 times and Retail subscribed 7.55 times.

The issue from TBO TEK Ltd, consists of a fresh issue of Rs400 crore and an offer for sale of 1,25,06,797 equity shares. The price band is Rs875-920. The issue has opened on Wednesday (May 8) and would close on Friday (May 10).

The company operates an online B2B travel portal distribution platform that connects buyers and sellers. It is present in the airline and hotel business currently. It earns a commission from the airlines whose tickets are sold on the platform while it charges a mark up on the rooms that are sold on the platform. The company is in a negative working capital cycle as its pays after receiving the money. It is adding new offerings on the platform and has recently added Eurail on its platform recently.

The company reported an EPS of Rs14.07 on a fully diluted basis for the year ended March 2023 and the PE band would be 62.19-65.39 on this EPS. There is no comparable peer in India in this space and listed players are basically online travel players like make my trip, Easy trip and Yatra online who would be using the platform provided by TBO TEK Ltd.

The issue offers scope on listing and in the medium to long term as well.

The third issue is from Aadhar Housing Finance Ltd. The issue is entirely an offer for sale of Rs2,800 crore. The price band is Rs300-315. The selling shareholder is the promoter. This company was acquired from the DHFL group when they fell on bad times around 2016-17. The company acquired was clean and had no issues while the group is struggling with various issues. The issue has opened on Wednesday (May 8) and would close on Friday (May 10). The company is a housing Finance company focused on the low-income housing segment with a cap on ticket size at Rs15 lakhs.

In terms of performance, the company reported a gross AUM of just under Rs20,000 crore at the end of the nine months period ended December 2023. A mix of the clients they serve is 60 per cent salaried and 40 per cent self-employed. The average ticket size is between Rs9 lakh to Rs10 ten lakh.

The company reported an EPS of Rs13.8 for the year ended March 2023 which on a fully diluted basis was Rs13.4. The PE band for the issue on diluted earnings is 22.4-23.5. NAV for the company at the end of December 23 is Rs107.6. The price to book at this NAV is 2.92 at the top end of the band. Based on the post issue, the NAV would improve to Rs123.07 at the top end of the band and the same ratio would be at 2.56 times price to book. This compared more than favorably with the peer set. There is money to be made in the issue in the medium to long term. There would be some listing pop as well.

The May 9-15 period ahead would continue to remain volatile and choppy. After the movement this week it would put my money on the long side only if markets cross and sustain levels of 22,800 on Nifty and 75,200 on the BSE Sensex are crossed and sustained. Till that happens one should believe we are in a trading zone and awaiting final clarity from election results due on June 4. Trade cautiously.

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