Consolidation need of the day

It was a week with a negative bias and benchmark indices closed in the red. The BSESENSEX lost 245.16 points or 0.83% to close at 29,461.45 points. NIFTY lost 47.50 points or 0.52% to close at 9,150.80 points. BSEMIDCAP and BSESMALLCAP gained 0.83% and 1.36% respectively indicating that action in the smaller space continues.

Infosys declared its results and continued to signal that all is not well at the tech major. Its revenue guidance for the year 2017-18 is muted as it has mentioned that the same would be in the band of 6.5% – 8.5% in constant currency terms. The profit for the quarter is lower than the previous quarter. It has also announced its intent to return Rs 13,000 crs to shareholders by way of dividend and /or buyback of shares. The elevation of independent director Ravi Venkatesan as Co-Chairman is probably a step to ease the friction between the founders of the company and the present management. It would also be pertinent to note that Vishal Sikka has received 40% lower remuneration from his variable component on account of the performance of the company. No wonder that the share lost 3.86% for the day and 5.08% for the week.

Dow Jones lost 202.91 points or 0.98% to close at 20,453.25 points. The US exploded a bomb better known as ‘MOAB’ (mother of all bombs) in Afghanistan on a cave held by ISIS fighters. This bombing took place on Thursday evening after our markets had closed and US markets were trading. Friday was a global holiday and how markets would react to yet another conflict would be known only tomorrow. The North Korea front is heating up and the fact that Russia doesn’t like America is a well-known fact. The only thing clear is that markets don’t like conflict and there would be some fallout on this account.

Shares of CL Educate are currently trading in the trade to trade category as the issue size was less than Rs 250 crs. The company had through a simultaneous fresh issue and offer for sale of shares raised Rs 238.95 crs in a price band of Rs 500-502. The total size was 47.60 lakh shares. The volume in the last nine days has been quite low and a cumulative volume traded is 9.81 lakh shares which is 20.61% of the IPO size and 29.45% if one considers the non-anchor portion. Considering the fact that the share would trade under normal market, the share is likely to see huge volatility from Tuesday and it would be interesting to see where the share goes from here. Clearly the education sector is under pressure and this company did not help matters by making it an overvalued offering.

Readers would remember that when issues are fairly priced and leave something on the table they receive overwhelming response. Names which come to mind are BSE, Avenue Super Marts and Shankara Building Products Limited. With a strong pipeline of IPO’s over the next couple of quarters one hopes that merchant bankers and promoters take note of this and price appropriately.

Markets are looking tired and need to consolidate at these levels. Some correction in terms of time and value is on the cards. Await till the same is over.

Performance of Newly Listed Shares as on 13th April 2017

Name Date of listing Issue Price closing price closing price % gain loss change over
13th April 7th March over week lssue price
Varun Beverages Limited 8th November 445.00 479.65 425.20 12.24 7.79
Sheela Foam Limited 9th December 730.00 1148.40 1094.00 7.45 57.32
Laurus Labs Limited 19th December 428.00 506.95 510.00 -0.71 18.45
BSE Limited 3rd February 806.00 1029.60 991.95 4.67 27.74
Music Broadcast Limited 17th March 333.00 358.45 361.30 -0.86 7.64
Avenue Supermarts Limited 21st March 299.00 784.05 750.50 11.22 162.22
CL Educate Limited 31st March 502.00 425.70 386.25 7.86 -15.20
Shankara Building Products Limited 5th April 460.00 757.55 685.10 15.75 64.68

Market players to look for safety

The markets continued their upward journey even though Friday saw a large correction considering the present mood in the markets. The BSESENSEX despite losing over 220 points closed with gains of 86.11 points or 0.29% at 29,706.61 points. Mid way through the week it had touched the level of 30,007 points. NIFTY closed with gains of 24.55 points or 0.27% to end the week just short of 92k at 9,198.30 points. The momentum continues to be strong and the midcap and smallcap indices outperformed the benchmark indices gaining 0.97% and 1.72% respectively.

RBI kept rates unchanged on expected lines. It however raised reverse repo rates sharply from 5.25% to 6% to suck out the excess liquidity with which banks have been saddled since demonetisation took place with effect from 8th November 2016. This will make the job of banks easier as they were worried what to do with the money lying in savings account of customers on which they had to pay the customary 4% and not be able to deploy the same.

Shares of Shankara Building Products Limited listed on the exchanges on Wednesday the 5th of April and made a great debut.The company had tapped the capital markets with a fresh issue of 45 crs and an offer for sale of 65.21 lakh shares in a price band of Rs 440-460. The issue was very well received and oversubscribed an overall 41.88 times. The issue on listing day closed with gains of Rs172.80 or 37.57% to close at Rs 632.80. By the end of the week the gains had increased to 48.93%.

The new kids on the block are D-Mart the grocery store chain promoted by Avenue Super Marts and Shankara Building Products which is three days old as far as listed stocks are concerned. The entire focus of trading in the market is heavily focused on these two companies. Traded volumes are huge and delivery volumes in just about the beginning of double digits between 8-11%. The price has been moving up steadily and in spurts and D-Mart against an issue price of Rs 299 closed at Rs 750.50. What explains the new found interest is indeed something which needs to be ascertained. However speculation and intra-day play these counters seem to be the hot ones.

All is not well at Infosys and the constant bickering by the former promoters is not in anybody’s interest. For reasons best known to only this disgruntled group they seem to be going to media for ever problem. This should not be the case and as shareholders they should use proper means of communication to write to the board and seek clarifications. In case they are not satisfied even after that there are provisions under the law that can be used. Simply bickering and using the media as a place to wash dirty linen is causing tremendous damage to the company, its stakeholders and also the morale of its employees. It’s high time that this group just “Let’s go” or sells its shares and goes.

Incidentally Infosys would be declaring its results for the quarter on Thursday the 13th of April. Friday is a holiday for the markets and with a long weekend people would like to reduce their positions before the same.

The key driver for the market momentum currently is the liquidity from FII’s and domestic funds. Inflows into mutual funds directly or through SIP’s are at record highs and the money seems like just pouring. In such circumstances one should not expect big corrections in the market unless they are driven by events. Result season for the quarter January to March 2017 would begin this week and go on for the next seven weeks. The markets have factored growth in top lines and would also expect a growth in profits and improvement in margins.

How much of this would be reflected in the numbers as they come would be known once the results are announced. Markets need to consolidate and the best way to reduce risk is to shift from the midcap and smallcap space to large cap where the margin of safety is much more.

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