Markets tired – wait for correction to buy

Markets were weak through the week and though the net weekly loss was a mere 294.75 points on the BSESENSEX and 94.35 points on NIFTY, the feeling was much worse. The momentum has been broken, FII’s buying interest has turned to selling and investors seem to be losing patience. I am not suggesting doomsday but very clearly the rally of the last two to three months is over. We need to consolidate and regain momentum before the next leg of the rally begins.

Week after week the market is getting a stock which literally goes crazy and hits circuit after circuit. Some time ago it was news of “Being Human” demerged out of Mandhana industries, then it was Max, and more recently it was Aditya Birla Nuvo. Last week was the turn of textile and home linen maker’s Welspun India’s turn. The share hit circuit breakers and closed at Rs 49.70, a weekly loss of Rs 53.15 or 51.68%. What triggered the fall? A review of the cotton procured by the company by one of Welspun’s large buyers. The question was the use of Egyptian cotton in the bed sheets. One must remember that Egyptian cotton production is on a sharp decline and is now down to just under 2% of global cotton production. How on earth so much of ‘Egyptian’ cotton fabric could be produced in the world. It’s a similar situation to the amount of scotch whiskey consumed in India and actually produced in Scotland. Yet another example could be basmati rice production.

To cut a long story short, an issue has been triggered for reasons best known to interested parties and provided an opportunity to relook at the company at half the market price. Take a concerted look at the fundamentals and decide on the timing to enter the company.

In primary market news, the issue from RBL Bank Limited was subscribed almost 69 times with the HNI portion a massive 198 times. It appears the lower rate of funding is driving a new breed of HNI’s to leverage and apply. How long this would be sustainable is anybody’s guess.

In conclusion use market rallies to sell and wait for the correction.

Performance of Newly Listed Shares as on 26th August 2016

Name Date of listing Issue Price closing price closing price % gain loss change over
26th August 19th August over week lssue price
Ujjivan Financial Services Limited 10th May 210.00 435.00 449.05 -6.69 107.14
Parag Milk Foods Limited 19th May 215.00 309.90 317.10 -3.35 44.14
Mahanagar Gas Limited 1st July 421.00 595.10 577.10 4.28 41.35
Quess Corp Limited 12th July 317.00 541.20 543.35 -0.68 70.73
L&T Infotech Limited 21st July 710.00 647.50 663.80 -2.30 -8.80
Advanced Enzyme Limited 1st August 896.00 1357.75 1384.50 -2.99 51.53
Dilip Buildcon Limited 11th August 219.00 227.25 245.70 -8.42 3.77
S P Apparels Limited 12th August 268.00 339.25 299.55 14.81 26.59

RBL Bank Limited – receives excellent response oversubscribed 69.62 times

The public issue from RBL Bank received excellent response and was oversubscribed 69.62 times. The issue comprised of a fresh issue of 832.5 crs and an offer for sale of 1.69 cr shares. The price band was Rs 224-225. The company had allotted 1.61 cr shares to 25 anchor investors comprising of 52 entities. The number of anchor seems large but it must be considered in the light of the fact that the company had appointed nine merchant bankers to handle the issue.

The full details of subscription is given below:

Category Bucket Size Shares Applied for Times oversubscribed
QIB 10864515 924367730 85.08
HNI 8111221 1606485075 198.06
Retail 18926183 107866655 5.70
Total 37901919 2638719460 69.62

There has been an active grey market in the share and the HNI subscription is proof of the same. Funding has largely happened at a rate of 5% and for a duration of seven days. This brings the cost per share to Rs 42 which is just about the grey market premium. Any weakness in the secondary market during the week would also reflect on the premium of RBL. Keep your fingers crossed and hope that the premium holds at least till Wednesday when the share is expected to list.

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