Volatile times ahead – Election results are key

The markets were volatile and had plenty of drama in the course of the last week. The first two days were virtually flat followed by a sharp fall. The last two days were big gain days and helped the BSESENSEX gain 417.36 points or 1.265 to close at 33,250.30 points. NIFTY gained 143.85 points or 1.40% to close at 10,265.65 points.

Election results for the Gujarat and Himachal Pradesh elections would be announced on Monday the 18th of December with exit polls allowed after the second phase of voting ends on Thursday the 14th of December. Markets would react to these exit polls on Friday and then the election results on Monday.

The all-time high on the BSESENSEX was 33,865 points and 10,490 on NIFTY. We are about 2% away from these levels and it is quite likely that markets would make a serious attempt to touch them if not cross them in the next six trading days beginning Monday. The best chance we have is on Monday itself if BJP wins Gujrat election with about 120 seats or better. If that does not happen markets could see a sharp short-term decline.

RBI in its monetary policy kept rates unchanged on expected lines. Hardly anybody expected anything different and even though markets fell that day it was more to do with the previous day’s opinion poll on Gujarat.

There were two primary market offerings in the week gone by. The first was from the super speciality hospital chain, Shalby Limited which raised Rs 480 crs from a fresh issue and an offer for sale of 10 lakh shares. The price band was Rs 245-248. The issue was subscribed 2.82 times with QIB portion subscribed 4.34 times, HNI portion undersubscribed at 0.42 times and retail oversubscribed at 2.98 times. The HNI portion saw a muted response because the issue could not be subscribed 50-60 times by this category and hence attract margin funding at 1 to 2% margin. This shows that the criteria for HNI funding is not the quality of issue but the rate of margin on borrowing.

The second issue was from Future Supply Chain Solutions Limited which was an offer for sale of 97.84 lakh shares in a price band of Rs 660-664. The issue was subscribed 7.55 times with QIB potion subscribed 12.36 times, HNI portion subscribed 11.15 times and Retail portion subscribed 3.26 times.

A small IPO opens in the week ahead from Astron Paper and Board Mill Limited. The company is tapping the capital markets with its fresh issue of 1.4 cr shares in a price band of Rs 45-50 to raise Rs 70 crs at the top end of the band. The issue opens on Friday the 15th of December and closes on Wednesday the 20th of December. The shares are being offered at a PE multiple of 14.71-16.34 times its financial year ended March 2017 numbers. The amount to be raised is small compared to the IPO size these days and paper as a sector is seeing traction. The company makes Kraft paper from waste paper.

Bitcoin has suddenly become the talking point at almost all forums. The kind of volatility witnessed where it rose to over 17,154 dollars and then fell to below 14k on the same day before closing at just a shade over 15k shows the fervour with which this is being traded. The important news is that Chicago futures exchange would permit futures in bitcoin effective Sunday the 10th of December. This effectively means that if you have a bearish view on this coin, you could henceforth short the same. This would make the kind of volatility witnessed a thing of the past. It would be interesting to see how the crypto currency fares now that it is included in futures. Two things would certainly happen with volumes going up and secondly the kind of price movement one saw in the last week certainly reducing

Liquidity has been driving our markets and valuations have become extremely expensive. Fundamentals seem to have taken a back seat currently. Look at subscription to IPO’s where the cost of funding is as high as 40 to 50% of the IPO price. The overall kitty in the funding pool bas grown significantly to now hover in the region of Rs 50,000-65,000 crs. This madness or exuberance has spread to the SME segment where firstly funding has started and secondly subscription levels have reached dizzy levels. Here again the situation is that for the cost to be met, there have to be three upper circuits before the same happens.

While markets are waiting for the election results and would therefore be volatile, it also provides trading opportunities. Play on the long side as there would be a positive bias. Friday would be reaction to exit polls and Monday is “D” Day. Cover your long positions with insurance in the form of buying puts.

Brace yourself for a volatile week and make the best of it.

Performance of Newly Listed Shares as on 8th December 2017

Name Date of Listing Issue Price Closing Price Closing Price % Gain Loss % Change Over
8th December 1st December Over Week lssue Price
SBI Life Insurance Company Limited 3rd October 700.00 684.25 655.85 4.06 -2.25
Prataap Snacks Limited 5th October 938.00 1228.25 1235.50 -0.77 30.94
Godrej Agrovet Limited 16th October 460.00 546.70 553.20 -1.41 18.85
MAS Financial Services Limited 18th October 459.00 638.50 640.40 -0.41 39.11
IEX Limited 23rd October 1650.00 1533.55 1528.45 0.31 -7.06
General Insurance Company Limited 25th October 912.00 801.60 797.00 0.50 –12.11
Reliance Nippon Life Asset Mng Limited 7th November 252.00 252.50 259.05 -2.60 0.20
Mahindra Logistics Limited 10th Novemeber 429.00 442.90 440.80 0.49 3.24
Khadim India Limited 14th November 750.00 686.20 688.80 -0.35 -8.51
HDFC Standard Life 17th Novmber 290.00 388.05 372.00 5.53 33.81

Future Supply Chain Solutions Limited – issue subscribed 7.55 times

The offer for sale from Future Supply Chain Solutions Limited was subscribed 7.55 times. The company had offered for sale 97,84,570 equity shares in a price band of Rs 660-664. It had earlier allotted 29,35,370 equity shares to 13 anchor investors comprising of 16 entities. Five anchor investors were allotted an identical 3,46,236 equity shares or 11.80% of the anchor book.

The issue saw the QIB portion subscribed 12.36 times while the HNI portion was subscribed 11.15 times. Retail portion was subscribed 3.26 times. There were 4.40 lakh applications which saw the retail portion on basis of number of applications subscribed 2.83 times.

The issue received a better response than the hospital chain simply because some amount of interested party funding happened for the leveraged HNI. Assuming that the funding is done at 5.5% rate of interest, the cost would be about Rs 8 per share. This is an insignificant amount considering the issue price of Rs 664. It is important that the issue lists well.

The full details of the subscription category wise is given below.

Bucket Size Shares applied for Times oversubscribed
QIB 1956914 24189220 12.36
HNI 1467686 16364590 11.15
Retail 3424600 11168938 3.26
Total 6849200 51722748 7.55
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